January 27, 2008

The Return of Say’s Law

Filed under: Economics — duncan @ 6:39 pm

Even I can tell that this is extraordinary bullshit.

“Macroeconomics is like astrology or Freudian psychology, in that a lot of people used to believe it, and a lot of people still do, but many with a scientific bent tend to stay away from it… Once you accept the notion that jobs can be scarce, you can turn the rest of economics upside-down as well… Keynes was part of a general intellectual trend which culminated [sic] in socialist experiments prior to World War II in Russia, Italy [sic!], and Germany [sic!!!] and after World War II in Western Europe as well as the Soviet Sphere… The Great Depression converted many economists to the view that market economies are subject to involuntary unemployment [shurely not…] that should be relieved by government policy… Classical economics [by contrast] does not allow for such a thing as a ‘general drop in demand for goods and services’… [I]n classical economics, we have unlimited wants. There is never a need to increase demand. Moreover, classical economics says that there is nothing that government can do to affect demand… My current view is that what we call ‘cyclical’ unemployment is in fact a severe version of structural and/or frictional unemployment… Given this theoretical outlook, I would be inclined not to forecast a severe recession in 2008… [T]he main ‘crisis’ motivating ‘stimulus’ is the fact that this is an election year.” !!!!

It shouldn’t need saying… why does it need saying?… a child could tell you this… but “demand” does not equal “wants”. The fact that we have “unlimited wants” does not mean that “[t]here is never a need to increase demand” – because demand = wants + money. If there’s a collapse of liquidity, like the one currently wreaking havoc in the world economy, then “wants” are neither here nor there. Wants without purchasing power = no demand. Hence the need for economic stimulus through the creation of liquidity. Of course Keynes advocated deficit-financed government investment in public works, rather than tax cuts, as a stimulus package. But it takes all sorts.

Is it possible that Arnold Kling is really as stupid as this article makes him seem?

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