John Hicks Doesn’t Understand IS-LM?

How else can I put this? If Krugman’s coffee-clutch dismissal of my criticism of IS-LM is wrong, then gee, I made the same mistake as John Hicks in his 1981 paper “IS-LM: An Explanation”. I was applying Hicks’s critique of IS-LM to Krugman’s use of it.

Post Keynesians like myself have been trying to get Neoclassicals like Krugman to consider Hicks’s critique of his own model for decades now, without success. I had hoped that making a direct attack on his use of the model and ending with Hicks’s conclusions might get him to jump out of his equilibrium torpor and finally read Hicks–but no such luck.

The next two paragraphs are the “sophomore mistakes” (to quote one of the comments to Paul’s dismissive) of John Hicks in

I accordingly conclude that the only way in which IS-LM analysis usefully survives—as anything more than a classroom gadget, to be superseded, later on, by something better—is in application to a particular kind of causal analysis, where the use of equilibrium methods, even a drastic use of equilibrium methods, is not inappropriate. I have deliberately interpreted the equilibrium concept, to be used in such analysis, in a very stringent manner (some would say a pedantic manner) not because I want to tell the applied economist, who uses such methods, that he is in fact committing himself to anything which must appear to him to be so ridiculous, but because I want to ask him to try to assure himself that the divergences between reality and the theoretical model, which he is using to explain it, are no more than divergences which he is entitled to overlook. I am quite prepared to believe that there are cases where he is entitled to overlook them. But the issue is one which needs to be faced in each case.

When one turns to questions of policy, looking toward the future instead of the past, the use of equilibrium methods is still more suspect. For one cannot prescribe policy without considering at least the possibility that policy may be changed. There can be no change of policy if everything is to go on as expected—if the economy is to remain in what (however approximately) may be regarded as its existing equilibrium. It may be hoped that, after the change in policy, the economy will somehow, at some time in the future, settle into what may be regarded, in the same sense, as a new equilibrium; but there must necessarily be a stage before that equilibrium is reached. There must always be a problem of traverse. For the study of a traverse, one has to have recourse to sequential methods of one kind or another.

John Hicks, 1981, IS-LM: “An Explanation”, Journal of Post Keynesian Economics, Vol. 3, No. 2 (Winter, 1980-1981), pp. 139-154

Sigh. Now I give up. Why talk with someone who won’t listen, even to the author of the model he thinks he understands?