It is, certainly. But there is basically no evidence to support the Republican story. While the stagflation of the late 70's had not happened before it was not something which inconsistent with the theory and cannot be construed to be a failure of Keynesian economics and new deal liberalism.
There were some technical points to make about the efficacy(and construction) of the various models but its an academic quibble and not something that has an effect on the overall theoretic construction. Kind of like how Darwinian Evolution has changed due to new evidence, but the overall idea of "natural and sexual selection" hasn't changed.
The minutiae can actually be summed up pretty succinctly. In Keynesian economic structure there are generally three big abstracted forces. Demand, Supply, and Money; each representing a complete market. Demand is the market for goods and services, Supply is the market for labor, and Money is the market for bonds/savings.
In an abstract sense we have a short term equilibrium (I.E. the current state of the economy) which is defined by the equilibrium point of the Money and Demand market and we have a long term equilibrium (I.E. the ideal state of the economy) defined by the equilibrium point of the Supply and Demand markets. The economy tends to push towards the ideal state of the economy.
Aside: From these we get the primary difference between Demand side and Supply side economics. Keynesians attempt to push the economy towards the idea, and supply siders want to push the idea. The problem with supply side policies is mainly that they don't actually increase supply, not that the idea of increasing supply is bad. The explanation for this is another post through.
OK so back to the structure. In a general static sense there can be three states of the economy. The demand/money equilibrium can be higher than the demand/supply equilibrium (we will call this over supply). The demand/money equilibrium can be lower than the demand/supply equilibrium(we will call this under supply). Or the demand/money equilibrium can be in equilibrium with the demand/supply equilibrium (which basically never happens)
But this would only be a snapshot in time of the current situation. Supply and Demand both tend to increase over time (and it tends to increase in ways we cannot predict for reasons which will go in that other post if it happens). And the difference in the speed at which they increase determines the general state of the economy. So we can think of four dynamic states. We can be in oversupply with supply/demand eq increasing faster than the demand/money eq. We can be in undersupply with supply/demand eq incrreasing faster than the demand/money eq. And we can be in over/under supply with supply increasing slower than demand.
The Keynesian structure at the time however was strictly static due to the state of mathematical advances at the time. The dynamic aspects of the situation had to be inferred from an understanding of the structure rather than an explicit model. While much of modern economics is about trying to model those dynamic aspects, the simple extrapolation from the Keynesian model is still a very good structure (this is also one of the reasons why Krugman is so good at predictions and many other economists are so bad)
There were some technical points to make about the efficacy(and construction) of the various models but its an academic quibble and not something that has an effect on the overall theoretic construction. Kind of like how Darwinian Evolution has changed due to new evidence, but the overall idea of "natural and sexual selection" hasn't changed.
The minutiae can actually be summed up pretty succinctly. In Keynesian economic structure there are generally three big abstracted forces. Demand, Supply, and Money; each representing a complete market. Demand is the market for goods and services, Supply is the market for labor, and Money is the market for bonds/savings.
In an abstract sense we have a short term equilibrium (I.E. the current state of the economy) which is defined by the equilibrium point of the Money and Demand market and we have a long term equilibrium (I.E. the ideal state of the economy) defined by the equilibrium point of the Supply and Demand markets. The economy tends to push towards the ideal state of the economy.
Aside: From these we get the primary difference between Demand side and Supply side economics. Keynesians attempt to push the economy towards the idea, and supply siders want to push the idea. The problem with supply side policies is mainly that they don't actually increase supply, not that the idea of increasing supply is bad. The explanation for this is another post through.
OK so back to the structure. In a general static sense there can be three states of the economy. The demand/money equilibrium can be higher than the demand/supply equilibrium (we will call this over supply). The demand/money equilibrium can be lower than the demand/supply equilibrium(we will call this under supply). Or the demand/money equilibrium can be in equilibrium with the demand/supply equilibrium (which basically never happens)
But this would only be a snapshot in time of the current situation. Supply and Demand both tend to increase over time (and it tends to increase in ways we cannot predict for reasons which will go in that other post if it happens). And the difference in the speed at which they increase determines the general state of the economy. So we can think of four dynamic states. We can be in oversupply with supply/demand eq increasing faster than the demand/money eq. We can be in undersupply with supply/demand eq incrreasing faster than the demand/money eq. And we can be in over/under supply with supply increasing slower than demand.
The Keynesian structure at the time however was strictly static due to the state of mathematical advances at the time. The dynamic aspects of the situation had to be inferred from an understanding of the structure rather than an explicit model. While much of modern economics is about trying to model those dynamic aspects, the simple extrapolation from the Keynesian model is still a very good structure (this is also one of the reasons why Krugman is so good at predictions and many other economists are so bad)
Post too long....
Reply
Leave a comment