Despite its great technical sophistication, in its conceptual essence, mainstream economics, now argued by its proponents to be increasingly converging on agreement and uniformity, is what Joan Robinson dubbed (as early as 1964) “pre-Keynesian theory after Keynes”. Dominant figures in this transformation include Friedrich Hayek, Milton Friedman, Robert Lucas and Eugene Fama, with Lucas and Fama currently the patron saints of Chicago and modern macroeconomics (real and financial) and macroeconomists, including Michael Woodford and John Cochrane. Now that it is put to its first really challenging test, following the period of “the great moderation”, let us examine whether its explanatory power and relevance have been found wanting.
Though there are several variants of modern macroeconomics, they all have their roots in (Irving) Fisherian Walrasian models of the process of accumulation in modern societies. In these, theconsumer queen attempting to maximise her expected life time utility is the core actor and decision-maker, with all other actors and institutions subject to her whims and desires, especially within a competitive environment.
Fisher’s basic vision and construct in theoretical terms was spelt out most fully and rigorously in the Arrow-Debreu model of general equilibrium. Subsequently, in the hands of Lucas and others, it was simplified in order to analyse the macroeconomic economy and to be the basis of stochastic general equilibrium models which at a practical level came more and more to serve policy makers in both central banks and treasuries. (At the same time Fisher’s perceptive analysis of the consequences of debt deflation has largely been ignored.)
Lea todo el resto del artículo de Geoff Harcourt aquí