The bitter, political fight to create a new macroeconomics

THE big debates in macroeconomics have never been polite. I suppose it’s understandable that this is the case; after all, the stakes are high. Tyler Cowen excerpts a new blog post by Scott Sumner, which reads:

…what’s happened since 2009 involves not just one, but at least five new types of voodoo:

1. The claim that artificial attempts to force wages higher will boost employment, by boosting AD.

2. The claim that extended unemployment benefits—paying people not to work—will lead to more employment, by boosting AD.

3. The claim that more government spending can actually reduce the budget deficit, by boosting AD and growth. Note that in the simple Keynesian model, even with no crowding out, monetary offset, etc., this is impossible.

4. More aggregate demand will lead to higher productivity. In the old Keynesian model, more AD boosted growth by increasing employment, not productivity.

5. Fiscal stimulus can boost AD…Continue reading

This post was originally published in the Economist.

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The bitter, political fight to create a new macroeconomics

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