Here is a table to organize the various viewpoints (K means Keynesian, C means Classical, S means a synthesis):
| Name | KCS | Date | Bumper Sticker |
|---|---|---|---|
| Classical | C | 1936 | Supply creates its own demand |
| 1960’s Keynesian | K | 1960 | Aggregated Demand determines output |
| 1970s textbook synthesis | S | 1968 | Aggregate Supply is short-run Keynesian, long-run Classical |
| General Disequilibrium | K | 1971 | Disequilibrium spills over from one market to another |
| New Classical | C | 1972 | Rational Expectations changes everything |
| New Keynesian | S | 1977 | Sticky wages and prices change it back |
| Populist Supply-Side | C | 1980 | Tax cuts raise revenue |
| Academic Supply-Side | C | 1982 | Productivity shocks determine output |
| Liquidity Trap | K | 1998 | Beware the zero bound on interest rates |
| Minsky Moment | K | 2011 | Financial stability breeds instability |
| PSST | C | 2011 | Structural change can be disruptive |
| Market Monetarism | S | 2013 | Focus on expectations for nominal GDP |
Notes: I date classical to the publication of The General Theory, because Keynes defined classical as a contrast to his views. I date 1960’s Keynesian to the Samuelson-Solow paper on the Phillips Curve. I date the 1970s textbook synthesis, which might be called the Friedman-Hicks synthesis, to the publication of Milton Friedman’s address to the American Economic Association (delivered in 1967, published in 1968). I date the general disequilibrium model to the publication of the Barro-Grossman book. I date the New Classical to Lucas’ JET paper. I date New Keynesian to the John Taylor and Stan Fischer papers. I date populist supply-side to the 1980 election campaign. I date academic supply-side (RBC) to the Kydland and Prescott 1982 paper. I date the liquidity trap to Krugman’s 1998 Brookings paper (yes, I know that Keynes was there first). I date the Minsky Moment to the 2011 edition of Kindleberger’s book (that’s also open to challenge). I date PSST to my paper in Capitalism and Society. I date Market Monetarism to Marcus Nunes’ book.
Note that the general disequilibrium, populist supply-side, and academic supply-side never really had much effect on the consensus.
One way to think of the history is that classical economics could not account for the Great Depression, and so we ended up with 1960s Keynesian as the consensus. But 1960s Keynesian could not account for the 1970s Great Stagflation, and so we ended up with the textbook synthesis as the consensus at the undergraduate level and the New Keynesian as the consensus at the graduate level. Policy thinking in Washington remained somewhere in between 1960s Keynesian and textbook synthesis, with some populist supply-side thrown in.
None of the macroeconomic viewpoints of the 1970s or 1980s could account for the aftermath of the Financial Crisis of 2008, so we had the last four emerge as contenders (I know it’s brave to put PSST in there, but it is going to be my book, after all).
This, plus that table, is exactly what I was hoping for. Thank you. I hope you’ll be ruthless in your critiques though, and explain why something like PSST is needed and how it can be used to perform policy analysis or, in the alternative, illustrate the limits of our capacities.
The last two paragraphs of this post look like a marvelous introduction to your book.
In the twenties the leading theories were 1) monetarist: sticky prices with monetary fluctuations as the key driver of business cycles–what Irving fisher called the dance of the dollar. E.g. His 1925 paper on the philips curve and his 1928 publication of the money illusion and 2) wicksell’s similar Instability of real interest rates which was the Austrian theory of Mises of the 10s and 20s–not referring to the malinvestment portion which was one many particular later blindnesses which attempted to exclupate the gold standard.
The essential element here being that most of the world was on a fiat standard in the 10s and 20s.
What you call supply creates its own demand is Walras’s Elements of Pure Economics (1887). That was long dead before the 30s.
Since this is a history lesson, perhaps I might say that the only thing right in “Supply creates its own demand = Walras 1887” is the nationality of the person who first wrote something rather like that. But the table is fantastic. What comes next in this series?
I find a lot of value in your taxonomy as well as overlap with my own. Obviously, in quick outline is subject to debate. I would offer some modifications more as a “concurring opinion” than a dissent.
1. As is, this is more of a taxonomy of short run macro than macro. I would describe 1960s Keynesian as “Aggregate demand determines output in the short run, Capital determines it in the long run.” This incorporates the Solow Growth Model and with its very influential populist policy implications in development.
2. Following on this, the most important development in macro over past 30 years is 1990s, “Long Run Growth & Institutions,” the Tullock-Grier and Barro-inspired literature about importance of property rights, institutions, … and long run growth.
3. The tag line on “Populist Supply Side” is misleading. Something more accurate would be, “tax cuts raise incomes and promote jobs.” Maybe a few Supply-Siders said as “tax cuts raise revenue” but that’s really buying into more of the distorted caricature of it. Lawrence Lindsey (or somebody like that) wrote a piece about this in J of Econ Perspectives (I think) about this very thing many years ago.
4. The “Academic Supply Side” leaves out a key element – Hamilton and oil prices. Ironically, Hamilton is a critic of the Prescott-type RBC model relying solely on “productivity” shocks (at least in a narrow sense) even though one could characterize oil shocks as a “real” or “supply side” shock and a type of shock to general productivity (at least in a broad sense).
5. PSST has deeper roots. First off, the statistical work in the 1980s by Prescott & others on variable (stochastic) trends lays a basic groundwork in the data. In addition, work by Pastor and Veronisi in macrofinance at Chicago on “Rational Revolutions” ties together these structural shifts in the macroeconomy with financial booms and busts.
6. I would suggest broadening the “Minksy Moment” to something like “MacroFinance Matters.” Minsky on financial stability, stochastic discount rates, long term swings in P-E ratios or P-GDP ratios. Various contributors including Shiller, Cochrane, Barro, …
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I thought this table was very useful. It may be worth hammering the point home with an imagined comparison of how (e.g.) theories for Evolution or Gravity could have changed so rapidly over the period. ‘What killed the dinosaurs’ and ‘tectonic plates’ are counter examples – but even these only changed a couple of times.
Related thought – is some of the rapid change mood affiliation promoting views (and hence publication / funding / tenure) rather than most professionals changing their minds?