Sunday, September 6, 2015

Keynesian Uncertainty: Policy Implications.

Prof. J. Barkley Rosser expounds on the diverse conceptions of uncertainty Keynesians entertain and their policy implications ("Alternative Keynesian and Post Keynesian Perspectives on Uncertainty and Expectations", Journal of Post Keynesian Economics, Summer 2001, Vol. 23, No. 4, pp. 545-566):
"Ultimately, of course, Post Keynesians must face the implications of the deep assertion of fundamental uncertainty by Keynes. Heiner's (1983, 1989) arguments are comforting that people will fall back on rules of thumb in moments of great uncertainty. But this is less useful when a la Shackle it is the crucial decisions of people themselves that are bringing about the uncertainty. There is the threat invoked by Coddington of a nihilism that cannot make any predictions even for policy. Davidson, who has excoriated so many for not properly recognizing Keynesian uncertainty, must also face this essential contradiction as he hopes for the successful implementation of beneficial policy that requires some degree of forecasting and ergodicity. His response (Davidson, 1996, p. 506) is to invoke Reinhold Neibuhr's Serenity Prayer: God grant us the grace to accept with serenity the things that cannot be changed (immutable realities), courage to change things that should be changed (mutable realities), and the wisdom to distinguish the one from the other.
"This observer suspects that Keynes himself would have found the line between these two to be uncertain." (emphasis mine)
Alan Coddington ("Deficient Foresight: A Troublesome Theme in Keynesian Economics", American Economic Review, 1982. Vol. 72, No. 3, p. 480):
"This paper has been concerned with a theme in Keynes' writing that it is convenient but -- as we have seen -- rather unsatisfactory to refer to as that of uncertainty in economic decision making. It has been my purpose here to present Keynes' foray into this area as an opportunistic but mild flirtation with subjectivism. I have argued that those who have been impressed and influenced by this strand in Keynes' work fall into two groups: (i) those who fail to see that Keynes' encounter with subjectivism is only a passing one; (ii) those who fail to see that subjectivism, once introduced, cannot be confined within the limits that would suit their [purportedly subversive of mainstream economics] analytical purposes." (emphasis mine)
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My two cents: While the adjective "opportunistic" -- which Coddington used -- fits Keynes wonderfully, I doubt "Keynes' encounter with subjectivism" was "only a passing one". On that, I'm sure the man was being sincere. After all, correct me if I am wrong, but wasn't he a believer in utility, too?

Regardless, there is something delightfully ironic in having to invoke God's help in order to apply Keynes' deep insights: here.

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