What did you expect?

The Chicago school has based its entire macro premise on rational expectations, a point they claim Keynes did not get. But they forget that Keynes wrote a book on the theory of probability. (Of course once Kolmogoroff arrived, all previous work on probability was wiped out. But that’s a different story. See Terry Tao’s probability notes.)

Read Keynes’s take on expectations in part VII of this chapter

Note that the current Krugman-Summers debate is just this. Krugman says investors are rational and will fund exporters when a currency falls. Summers says investors may flee the country en masse, leaving exporters high and dry despite their export opportunities. 

It’s all expectations, whether love or macro. 

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