“Supply-side” ignorance

A supply-side approach means to leave it to the market to sort things out. Supply-side does not mean telling suppliers the wages they must pay their workers. Here is a piece of academic literature that only emphasises to me that we are never going to get our economies working again: Supply-Side Policies in the Depression: Evidence from France. This is the abstract with some bits in bold:

The effects of supply-side policies in depressed economies are controversial. This Working Paper sheds light on this debate using evidence from France in the 1930s. In 1936, France departed from the gold standard and implemented mandatory wage increases and hours restrictions. Deflation ended but output stagnated. The authors present time-series and cross-sectional evidence that these supply-side policies, in particular the 40-hour law, contributed to French stagflation. These results are inconsistent both with the standard one-sector new Keynesian model and with a medium-scale, multi-sector model calibrated to match the authors’ cross-sectional estimates. They conclude that the new Keynesian model is a poor guide to the effects of supply-side shocks in depressed economies.

Did they not see what would follow? I just hope that policy is somewhat better today, but you can’t be sure.

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