Alan Blinder

"Keynesian economics is the economics of nominal rigidities basically, nominal rigidities everywhere. Fully anticipated money does affect output. Everybody can see that! So, it's right. The fact that it's not as theoretically tidy as Lucas's 1972 Journal of Economic Theory paper is not a reason to throw it away. That's become a minority view in this profession, unfortunately. It wouldn't have been in the '60s."

"Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently."

"How much do you think it costs to go to college? Most people are likely to answer by adding together their expenditures on tuition, room and board, books, and the like, and then deducting any scholarship funds they may receive. Suppose that amount comes to $15,000. Economists keep score differently. They first want to know how much you would be earning if you were not attending college. Suppose that salary is $20,000 per year. This may seem irrelevant, but because you give up these earnings by attending college, they must be added to your tuition bill. You have that much less income because of your education. On the other side of the ledger, economists would not count all of the university’s bill for room and board as part of the costs of your education. They would want to know how much more it costs you to live at school rather than at home. Economists would count only these extra costs as an educational expense because you would have incurred these costs whether or not you attend college. On balance, college is probably costing you much more than you think. And, as we will see later, taking opportunity cost into account in any personal planning will help you to make more rational decisions."

"For a period of roughly 35 years, Keynesian theory provided a central paradigm for macroeconomists, and considerable progress was made on several empirical fronts. It was widely recognized that some of the ingredients of Keynesian economics (e.g. money illusion and/or nominal wage rigidity) rested on slender to non-existent microtheoretic foundations; and there were always dissenters. But, thought of as a collection of empirical regularities that fit together into a coherent whole, the theory worked tolerably well. In the 1970s, however, the Keynesian paradigm was rejected by a great many academic economists, especially in the United States, in favour of what we now call new classical economics. By about 1980, it was hard to find an American academic macroeconomist under the age of 40 who professed to be a Keynesian. That was an astonishing intellectual turnabout in less than a decade, an intellectual revolution for sure."

"The word ‘Keynesian’ means many things to many people. Decades ago, it was a carelessly applied label for economic liberals and interventionists in general. For a while in the late 1970s and early 1980s it became a pejorative term more or less synonymous with old-fashioned."

"First and foremost, Keynesian economics is a theory of aggregate demand and of the effects of aggregate demand on real output and inflation."

"Monetary policy decisions tend to regress toward the mean and to be inertial—and hence biased in just the same way that adaptive expectations are biased relative to rational expectations. But errors like that, while systematic, will generally be small and will tend to shrink over time. And, in return, the system builds in natural safeguards against truly horrendous mistakes."

"The new arguments for rules take an entirely different tack. They are based neither on the ignorance nor the knavery of public officials and, in fact, assume that everyone knows how the economy operates—even the government! Moreover, the government's objectives are assumed to coincide with the people's objectives, and everyone has rational expectations. Despite these seemingly ideal circumstances, modern critics argue that a central bank left with discretion will err systematically in the direction of excessive inflation. To remedy this distortion, they advocate a fixed rule."

"In central banking circles, it is viewed as obvious that the accumulation and destruction of reputational capital more closely resembles adaptive than rational expectations — it lags behind reality. Here, I think, the central bankers are closer to the truth than the economic theorists."