Do Economists Have A Reading Problem?

Paul Krugman criticized Robert Lucas who argued that government spending cannot stimulate the economy. In this post he responds to an economist who believes that he wrongly criticized Lucas, because Lucas did not say what Krugman claimed that he had said. It is pretty clear that Lucas did say that government spending cannot stimulate the economy. He stated that government spending only expanded the money supply. Therefore, fiscal policy is useless.

Krugman, gets more than his share of comments from critics who don't like what he has to say about the economy. Many of his critics learned their economics from economists who have been influenced by the Chicago School. These economists conform to an ideology which holds that government should not intervene in the market. Robert Lucas is a prime example of that school. His theory of rational expectations suggests that no matter what the government does to intervene in the economy, individuals will perceive the implications and adapt their behavior to blunt the impact of government policy. Krugman's critics may not have a reading problem. Krugman is attacking their religion. Moreover, he is essentially a Keynesian who believes that fiscal policy has a role to play in a recession. Lucas, and others in the Chicago School, have devoted their careers to eliminating Keynesian ideas from economics. Lucas said that graduate students only giggle when someone refers to Keynes. What we are seeing is religious warfare in economics that is being played out in US politics as well. It is not surprising that economists appear to misread each other. That may be a good thing. If economics did not matter in the real world, and for many years it did seem irrelevant, what would be the purpose of teaching it? This is a good time to be teaching economics and to sort out ideas that matter from those that exist only in assumptions about how imaginary people behave in an imaginary economy.