Credible economists like Hayek, even von Mises and Milton Friedman knew the limits of positivism in economic models. It isn’t that they eschewed them outright, they knew the margins of their discipline, spending their time more on exposition in defense of certain public policies than outright theoretical speculation. For them and those like them, they enjoyed articulating a polemic that destroyed illusions; none harbored more than Keynes and his cohorts.
Keynes loved his multiplier, but he saved his hatred for gold-bugs and rentier capitalists throughout the British Empire who he openly sought to disenfranchise through confiscatory taxation and fiat money.
That story is well told, what isn’t is how economics behaves more like an ideology than science. That is why First Things author Richard Spady titled his article Economics as ideology.
Economists and central bankers throughout the world have openly coveted for a utopian ideal that is purely theoretical than empirical or real. Their looking for a dynamic threshold at which social components in the economy are in balance; balance here refers to inflation statistically calculated as NAIRU or Non-accelerating Inflation Rate of Unemployment, denoted as r*.
The difficulty is this: no one has ever measured it. Its really a moving target. Because NAIRU is tethered strongly to a contested ideological foundation of Keynesian thought called the Phillips curve, its always dependent on other variables. For definition, the Phillips curve embodies a belief that the central bank controls the informing relations between employment, output and inflation. (For simplicity sake, they don’t.)
Nevertheless, NAIRU rests on contentious estimates that falling unemployment pushes prices and wages up. That relationship has broken down and hasn’t be replaced with anything credible.
Here’s the good news, those who haven’t spent a lifetime of time and money credentialing into a flailing discipline like Keynesian thought should know that political norms like limited enumerated government and sound fiscal policy remain the guardrails that central bankers loath to acknowledge.
The re-ascendancy of the moral bonds of liberty are returning to the commanding heights of our national political economy. They really cannot be captured in positivist models.