Prof Soumyen Sikdar (IIM Kolkata) is presenting a seminar tomorrow (Wednesday, 8th March) in Seminar Hall 1 at 4:00 p.m. The title of his talk is:”The ‘Unnatural’ Foundations of Modern Macroeconomics and Its Unpleasant Consequences”. All are invited.
The Global Financial Crisis or the Great Recession has seriously questioned the relevance of the Neo-classical Synthesis, the ruling paradigm in macroeconomics since the late 1970s. The profession was lulled into the belief that business cycles have finally been tamed for good and the Great Moderation will continue. The crisis has clearly forced a reassessment of that belief. Gaping holes have been exposed in the conceptual and analytical foundations of the approach. The policy conclusions of the flawed framework, it is claimed, have contributed in a very significant way towards the genesis and spread of the crisis. The present paper consists of two parts: (a) a post crisis reading of Friedman’s 1968 paper which introduced the Natural Rate Hypothesis, (b) discussion of the lack of conceptual clarity about the Natural Rate at the textbook level. For a discipline that claims to be a science, lack of unanimity of such degree on the treatment of a foundational concept is indeed very surprising. Also, contrary to science, there was no attempt to examine or modify the undergirding ‘belief’ in the light of empirical evidence.