I'm still new to the subject, although I'll probably be voicing a rather strong opinion on the subject before long, but I was wondering if anyone here was familiar with/had thoughts on "New Classical economics". Note that this is NOT neo-classical economics, although it could be considered the logical extension of the theory.
You can find more about it here and here if you really take an interest
I'm predisposed to dislike the approach because it takes away from the eternally shifting and uncertain nature of the market and is wholly opposed to the essence of Austrian economics, much like the essence of the Chicago School's EMH. I also have a suspicion that in reality they have a very hard time really explaining business cycles as well. I think that the best within the school is rational expectations, although they probably radically overestimate how much the theory really holds.
Thoughts?
Might I ask what level of education you're at?
The reason is, extrapolating from my own experience and that of others I've spoken to, much undergraduate and almost all graduate level macro is new classical and new keynesian macro, as far as business cycles/fluctuations go with the other half of the course being Ramsey growth theory using Optimal control methods and all its modern spinoffs.
I'm not personally particularly enthusiastic about it, but I kind of feel that way about macroeconomics in general, much of the subject just seems foundationally wrong headed whatever approach is taken. That being said, I think some of Lucas's work is interesting, especially the signal extraction/Lucas islands problems.
In addition I also think John Muth's original 1963 paper is well worth checking out, especially considering it had a completely microeconomic theme, unlike almost everything else ironically that's followed studying "rational expectations." He was criticizing a portion of the market failure literature blaming "hog cycles" in agriculture based on adaptive expectations variants of the Cobweb model (itself a nice expose of the nonsense resulting from non-praxeological pproaches to economics).
"When the King is far the people are happy." Chinese proverb
For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
I only just finished intermediate macro which was the first full macroeconomics course I've had and we focused entirely upon business cycle theory. I also don't know how well I was introduced to the subject since my professor was avowedly and openly Keynesian although he also tried to be fair to other schools.
"I'm not personally particularly enthusiastic about it, but I kind of feel that way about macroeconomics in general, much of the subject just seems foundationally wrong headed whatever approach is taken."
Could you expand on this? Also, how do you feel about the underlying assumption of rational expectations? I feel that it really brings out all the bad in Neo-Classical economics in that it seems to assume perfect rationality and knowledge on behalf of all actors. The idea that labor in general is supposed to understand economic theory is especially comedic in my eyes. I'd also like to throw out there (and would appreciate your opinion upon) my thought that all mainstream macroeconomic schools are fundamentally Keynesian in that they adhere primarily to AS-AD models as the primary determinate of economic health/output as well as IS-LM analysis, both of which are, in my mind, the two most radical developments in formal economic thought that developed with mature Keynesianism.
Sorry about the late reply. I was planning on going over my macroeconomics notes from last year some time soon, and thought I could give you a more informed repsonse but since that hasn't happened yet here goes nothing. :P
I don't think rational expectations is completely bad per se, especially when you consider some of the adaptive expectations based arguments its originator John Muth was countering, though the extent to which it is taken and often applied clearly is batshit crazy. I think also some of the issues regarding its applicabillity are missed or glossed over especially in macroeconomics is precisely due to the fact that decisions are assumed to be made by representative agents over aggregates like the future price "level" for instance. If a more disaggregated approach was taken toward the modelling of decision making, for instance regarding the prediction of a vector of all product and factor prices as well as a host of other contingencies then not only would the porblems grow magnificently in mathematical complexity, but I think a greater appreciation of how inapplicable the way rational expectations is used in models across the board could be gained.
I'd also like to throw out there (and would appreciate your opinion upon) my thought that all mainstream macroeconomic schools are fundamentally Keynesian
I think I'd roughly agree with this but to me the issue goes back even to the very measures being used at the core of the discipline from which the goals are to predict the path of like output as "Real GDP," or "Capital" as the "real" sum of currently valued balance sheet capital. There can of course be such a concept as "real" output but whether you could unambiguously define it given varying price elasticities of demand from increases of goods, then dividing by a price index seems questionable to me and I've never seen any kind of demonstration of this in a texbook or elsehwere. I don't think I need to explain to an "Austrian" the issues arising out of the treatment of capital in the above way. Given that the entire goal of modern macro is really to trace the path of these questionably defined variables, this is kind of why it has always seemed like a bit of a shell game to me from the get go, and why spurious and nonsensical models that provide a good retrofit in tracing the path of these aggregates can get a free pass for so long.
Having said that, I do recommend at some point in your life trying to read Muth's original paper to get an appreciation for why rational expectations is not always a bad thing per se, especially when you consider that the Cobweb model was once taken seriously as an explanation of industrial fluctations, at least within a sector (that being said this is understandable given that Walrasian price theory, unlike Bohm Bawerkian price theory, gives no indication how prices can actually form, hence ad hoc constructs like the Walrasian auctioneer are resorted to). In addition I do remember liking the Lucas Islands stuff, considering the signal extraction problems of prices under imperfect information, again it's a question of how far you take it (again this involves simply the comparison of one price against a price level). In addition, as you may know the above model is also used to criticise the ABCT since in a Lucas islands world producers cannot forever mistake nominal price increases induced by a central bank increasing money supply for prices increasing in just their own product thus corresponding to production increases. Some writers I think have drawn similarities between that model and its variants with the ABCT, but again I don't think the analogy can go too far. I can't really go into more detail unless you want me to dedicate a post illustrating and critiquing the Cobweb model or showing the Lucas Islands model (ample resources should be on the internet).