Stiglitz on Ricardian equivalence

27 Sep, 2012 at 14:29 | Posted in Economics | 6 Comments

Ricardian equivalence is taught in every graduate school in the country.

It is also sheer nonsense.

Joseph E. Stiglitz, twitter

On Ricardian equivalence and the alleged impossibility of fiscal stimulus, see here, here, here, here, and here.

6 Comments

  1. what’s nonsense equivalence = nonsensical (he, he)

  2. It would be possible to fill in an entire book with nonsensical economic concepts. Or is it what’s called Manual of Advanced Economics?

  3. It’s a common misconception that Ricardian equivalence renders fiscal stimulus “impossible”. In fact, the theorem does not say anything about the effect of fiscal spending. What it does say, though, is that tax reductions won’t stimulate the economy.

    Ricardian equivalence might be wrong, in the same way as Arrow’s impossibility theorem might be wrong. But would the world actually be better off without this knowledge?

  4. In the world of ricardian equivalence, people like to see their wages decreased and the fiscal consolidations are expansionary 🙂

    • Yes, Aston. Only in the ricardian equivalence world do people believe that spiralling labour costs in peripheral europe is actually a problem.

      http://krugman.blogs.nytimes.com/2012/09/26/euro-update-the-perils-of-pointless-pain/

      What a nut job, this Krugman. We all now that doubling of wages would be a great idea as it would add to effective demand!!

      • Our governments in the eurozone (and in U.K.) are living in the ricardian world (or maybe, maybe, there are some conflicts of interest that push them to take the bad decisions). The core problem is the big deflationary force exercised by the German wage stagnation. Germany succeeds with stopping domestic wage increase and benefiting from the demand of its neighborhood. The GERMAN wages should be increasing.

        I’m not really against Krugman… If more people read him, things will be better. Some conclusions are good, even if the argumentary path he takes to come to these conclusions is full of wrongness.


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