lunes, 10 de noviembre de 2014

November Rain (II) A Green Jacket for Leijonhufvud

During my frequent journeys beyond the edge of the mainstream, I usually meet some old friends here and there, and Axel Leijonhufvud is certainly one of a kind. I have found through the years that behind his analytical modesty he's a hidden master of intuiton. It is also true that, following  the valuable advice of Fernández-Villaverde, I always walk cautiously and I don’t stop with anybody unless I find something that really matters, because heterodoxy and ignorance are often traveling companions. The fact is that the Swedish Quixote is my weakness, and I usually spend the rest of my way thinking about what I’ve learnt in my casual meeting with his original ideas.
As I have written before, I'm fascinated with the idea of the existence of a neoclassical corridor, which first appeared in perhaps an unjustly forgotten sheaf of 1973. It appears to me as a good framework for thinking about fixing the numerous problems of modern macroeconomics theory. The basic intuition is related to the existence of situations in which the  self-regulatory mechanisms of the market (price adjustments) are able to mantain the economy in a scenario of steady growth, in which a reasonable degree of coordination is achieved and variables more related to the ultimate welfare of individuals are stuck in "proper" values (low unemployment,  high level of confidence in institutions, good prospects)... Beyond the edges of this idyllic path, darkness spreads. Multiplier processes appear everywhere (contagious bankrupcy mechanisms, successive falls of effective demand and employment,  discriminatory rampant inequality, currency instability, the breakdown of confidence to coordination..). As King Mufasa knows well, no benevolent ruler should recommend lion cubs to venture into such unfamiliar places and vigorous public actions (rescue policies) are required to return to a situation of harmony in the system.
The new idea would be to introduce greater number of regions in the analytical framewok. Not only black and white but shades of grey. Several trails surrounding the homeostatic region where the Invisible Hand of Adam Smith and price signals intuited by Hayek are dominant and the market works. ¿What is the width of each region? ¿What policies shuold we implement after defining our position?. Believe it or not, we know  some things. Although different schools of Economic Thought still argue about the indications and contraindications of different medicines and remedies depending on the situation, history has taught us useful lessons: beware of the financial system/ saving banks maybe, save bankers is never a good idea/ the policies are not neutral in terms of distribution, price controls are dangerous tools...
Carrying intuition beyond, the idea would be to establish a framework of thinking that allows us to accumulate what we already know, delineate areas and widths, and then apply the best remedies in case of need. It’s different when the ball is on the putting green or on the rough. It could require special skills to save the sand trap. And it is not preisely that we lack Seves to solve even seemingly hopeless situations. We have Stiglitz and Akerlof, specialists in dark areas. Or the Blanchards and Fenández-Villaverdes, true experts in maintaining the ball into the fairway to ensure the minimum possible strokes to claim the applause of the crowd. I would add to this view the wise words of Professor Anisi and Joan Robinson. Although this great golf bag that is the economic theory seems to provide us with material to overcome any bogey threat, It's precisely in our sclerotic Europe where it appears that the caddy does not give us the correct clubs. And in this case we have already lost the Ryder Cup. Let's try to find the right brat, because the grass is at least high on the surroundings. But before continuing, l loudly suggest giving the Green Jacket of Augusta to someone outside the orthodoxy. Three cheers for Axel, who is always there, with the right focus everytime. They should even allow him to take the championship coat to his particular Pedreña, as the unforgettable Ballesteros did. And incidentally, with the Great Causelo and Anisi as real or spiritual witnesses, Juan Urrutia could be a good candidate for giving him the trophy, as an old colleague at that effervescent madness of the first 70s.

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