>> W E B P O N D O ..:::::.__

Webpondo: Thank you very much for giving Webpondo the opportunity of doing this interview. We hope to cover several subjects, from your professional work on conflict to questions about Bogotá.

Herschel Grossman: I reserve the right to say no answer.

W.P: Definitely, and that would be respected.

H.G: You see, we have in the United States Constitution, the so-called Fifth Amendment, to avoid incriminating yourself.

W.P: Our first question has to do with the great diversity in your research career, with contributions spanning from monetary theory to political economy. Why such diversity?

H.G: I have many interests, I've been curious about many things. But also I think I followed a natural progression in my work. As you probably know, I started off doing Keynesian macro economics. I started that work almost 40 years ago, and I did it for maybe 15 years. Some of this work was published in 1976 in the book with Robert Barro, a book that many people used to learn macroeconomics in those days, almost 30 years ago!

There were several unanswered questions that attracted me. One question was of course the central question in Keynesian economics. Keynesian economics is built on the observation that nominal wages are sticky. As a result, monetary policy and other nominal disturbances have real effects in the economy. That is the central idea in Keynesian economics. That is what Keynesian economics tries to understand: Why is it possible for a central bank to create a recession?

W.P: Because it has the power.

H.G: That's true, but why? Why do we have to care about monetary policy other than for inflation? Why it is that monetary policy has real effects? That's the central issue of Keynesian economics. Keynes observed, and I think it is a correct observation, that monetary policy has real effects on the economy. And the fundamental answer in Keynesian economics is that there is nominal stickiness in the economy. People contract in nominal terms. That is an answer but it is not a complete answer because it leads to the next question: Why do people contract in nominal terms?

For many years I struggled with this question, and finally I concluded that the standard paradigm of neo-classical economics cannot provide a satisfactory answer, that an answer requires ad-hoc assumptions that violate the postulates of neo-classical economics. Many economists think that neoclassical economics provides one grand theory that can account for all economic phenomena. But neoclassical economics does not allow for what that we observe: namely, the connections between monetary policy and real activity.

While thinking about this problem I did some interesting work on labor contracts, which at one time I thought could provide an answer, but now I think it doesn't provide one. It still pushes you back to the same questions: Why don't people contract in real terms? Why do they contract in nominal terms? I guess after 20 years of working on this question I got discouraged.

Descargar documento completo (archivo pdf 121 kb)