Arnold Kling  

Keynes and Hayek--They're B-a-a-c-k!

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What Could Go Wrong?... If Government Were a Rich Man...

Russ Roberts and John Papola are at it again. They are interviewed after the rapping (they are not the rappers), and I like the way Papola scorns the GDP factory.


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COMMENTS (5 to date)
D. F. Linton writes:

Seconded. He shows that AS-AD has no clothes at all in about three sentences.

David R. Henderson writes:

Fantastic!

John Papola writes:

Thanks, Arnold! I’m pretty sure that GDP widget idea was in my head from reading your post on “hydraulic” macro. I don’t get AS/AD at all. Not one bit. Where are these curves? Isn’t it just a dot vibrating in time? Where is the “Aggregate Supply” store and how to I bid for it at the “price level”? Seems like nonsense, though I imagine there is some usefulness in the construct in a very limited, stylized way.

ps. I watched a discussion where Brad DeLong and Robert Schiller talked about GDP and Schiller literally referenced it as if it was a real thing that everyone had a tangible “share” in and could be used for creating some kind of GDP bond or something. It was bizarre. But maybe I’m just missing something.

Doc Merlin writes:

A demand curve is a relational preference. By arrow's theorem these preferences cannot be aggregated in the way that the AS-AD model suggests without some absurd results.

Am I mistaken? Anyone care to argue about this?

mark writes:

Believe it or not, right now there is GDP factory and it is called
*infrastructure*.

But notwithstanding, how do you argue with the fact that, even though
plenty of richer companies have lots of cash and there are lkts of
really wealthy people, none with a few exceptions, have a considerable
large place in invest except into government securities. Businesses
do not seem to be interested in investing as Heyek suggests, instead
they seem to be interested in hibernating, even though they have cash
in hand.

So what we have is that we are losing wealth by leaving on the table
what those 5% of unemployed could have produced vs. them sitting on
unemployment subsidy. And yes, right now we have things to do for them
which will pay off in 30-50 year horizon which no private business
wants to deal with. And no, most of them can't find jobs in private
sector. Nada.

Only when economy starts heating up as measured by lower unemployment
rates, government should withdraw. And no 70s didn't disprove keynes.
They have shown the difference between long-term and short-term budget
inflation expectations.

And yes, stimulus was too small as back of the envelope calculation
were showing, even before it passed.

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