In the letters section of this week’s Economist
You don’t Say
The term “Say’s Law”, (Economics brief, August 12th) was invented by the American economist, Fred Taylor, and popularised in his introductory text, published in 1921. Moreover, the phrase “supply creates its own demand” is not classical in origin, but was first used in print by another American economist, Harlan McCracken, in a text that John Maynard Keynes is known to have read while he was writing the General Theory. Jean-Baptiste Say neither invented the concept nor was he its most staunch defender.
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And while you may think this is purely a factual statement about the construction of a book that was published more than 80 years ago, it is actually a suggestion that the mythological version of how Keynes came to write his book is many miles short of the truth. And as for the contents of the book, that falls even many miles shorter not just of the truth [how ridiculous to have argued that classical economists had no theory of involuntary unemployment] but of an understanding of how an economy first goes into recession and then recovers.
I’ve just been reminded of an article from The Economist published 16 July 2009 titled, What went wrong with economics. Note that it is not a question but a statement. The Economist naturally has no clue being an ultra-Keynesian rag but this, at least, can be dredged from its commentary:
And if economics as a broad discipline deserves a robust defence, so does the free-market paradigm. Too many people, especially in Europe, equate mistakes made by economists with a failure of economic liberalism. Their logic seems to be that if economists got things wrong, then politicians will do better. That is a false—and dangerous—conclusion.
What’s missing apparently is a more sophisticated financial model to graft onto the Keynesian core of what The Economist thinks of as good economics:
Central banks are busy bolting crude analyses of financial markets onto their workhorse models. Financial economists are studying the way that incentives can skew market efficiency. And today’s dilemmas are prompting new research: which form of fiscal stimulus is most effective? How do you best loosen monetary policy when interest rates are at zero? And so on.
As early as July 2009 they could see that the fiscal stimulus had been a disaster. They just do not see that trying to drive an economy along using either monetary or fiscal policies is the problem. Public spending and near-zero interest rates leave an economy dead in the water but they cannot see that their solution is the very problem itself.