Thursday, March 25, 2021

Some Economic History Jargon You Need to Know: Neo-classicals and New Classicals

There's some jargon here you need to keep on top of.

Neo-classical economics is one thing.

New Classical macroeconomics is a different thing, and is a subset of neo-classical economics.

Neo-classical economics is the micro-oriented ideas that go back almost 150 years. Stuff based on supply and demand, equilibrium, optimization, rationality, and so on.

New Classical macroeconomics is the research program that started in the early 1970's, and that is still ongoing. Lots of Nobel Prizes were awarded for this work: Lucas, Kydland, Prescott, Sargent, maybe Barro (who probably won't get one due to personal animosity), plus big contributions from the time-series winners Engle, Granger, Sims, and Hansen. These were the people who got the profession to back off of Keynesian macroeconomics by arguing that if we took our micro optimization and rationality seriously, that it would be really hard to influence the economy with the aggregate demand policy which politicians love so much.

A lot of the catechism that Mason refers to comes from partially dismantling Keynesian macroeconomics and replacing it with New Classical insights. 

When Tyler Cowen remarks in a linked post that Mason is dismissive of a lot of empirical results that were never disproved, it's these ones. They're definitely inconvenient to Mason. But to Cowen and me, they're still correct.

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