Fact and fiction in economics

8 Oct, 2016 at 10:31 | Posted in Economics | 3 Comments

The idea that we can safely neglect the aggregate demand function is fundamental to [classical] economics …

general_theory_of_employment__interest_and_money_-_j_m__keynes-661777.jpgBut although the doctrine itself has remained unquestioned by orthodox economists up to a late date, its signal failure for purposes of scientific prediction has greatly impaired, in the course of time, the prestige of its practitioners.For professional economists, after Malthus, were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation;—a discrepancy which the ordinary man has not failed to observe, with the result of his growing unwillingness to accord to economists that measure of respect which he gives to other groups of scientists whose theoretical results are confirmed by observation when they are applied to the facts …

It may well be that the classical theory represents the way in which we should like our economy to behave. But to assume that it actually does so is to assume our difficulties away.


  1. “… and Ricardo conquered England as completely as the Holy Inquisition conquered Spain.”

    What a joy it is to read Keynes.

  2. Without the need to take aggregate values of the variables in macroeconomics (total 19 or more) it is absolutely impossible to honestly understand what is REALLY taking place in our society. I’ve doe it and so can you.

  3. lol.
    “The first question I would like to pose concerns the distinction between aggregate supply and aggregate demand: Are there circumstances in which changes in aggregate demand can have an appreciable, persistent effect on aggregate supply?
    Prior to the Great Recession, most economists would probably have answered this question with a qualified “no.” They would have broadly agreed with Robert Solow that economic output over the longer term is primarily driven by supply–the amount of output of goods and services the economy is capable of producing, given its labor and capital resources and existing technologies. Aggregate demand, in contrast, was seen as explaining shorter-term fluctuations around the mostly exogenous supply-determined longer-run trend. This conclusion deserves to be reconsidered in light of the failure of the level of economic activity to return to its pre-recession trend in most advanced economies. This post-crisis experience suggests that changes in aggregate demand may have an appreciable, persistent effect on aggregate supply–that is, on potential output.”
    –Janet Yellen, http://www.federalreserve.gov/newsevents/speech/yellen20161014a.htm

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