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The other peculiarity with this sort of debate is why Hayek is being invoked at all. Hayek's economics has absolutely nothing to do with modern macroeconomics. His understanding of the economy bears no relation to any of those that currently prevail or have any leverage over policy. He is some respects not a million miles from Keynes on uncertainty, but that is why Keynes' original thesis had to be emptied of all content by Hicks and the neoclassical synthesis. Uncertainty was removed from the story in order to tame Keynes into the IS/LM framework. In the process they completely lost the point. And they lost the aspects of Keynes that brought him closer to Hayek. Uncertainty deeply threatening to contemporary economics at an ontological, epistemological and methodological level, which is why it persists with risk. If you embrace the importance of uncertainty and the idea that the future is currently underdetermined - there are genuine choices today that will shape which future comes to pass - then the whole edifice of formalism falls to pieces.
Toggle Commented Dec 6, 2011 on On uncertainty at Stumbling and Mumbling
The whole discussion reminds me of the natural rate of unemployment, which moved arbitarily and sharply up or down in line with actual unemployment depending on whether it looked like inflation might be developing. Suggesting it wasn't 'natural' after all. That was guff. The idea of a structural deficit isn't much better.
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Dec 1, 2011