Thursday, September 16, 2010

I love the ignorance of the anti-stimulus lobby.

“The free market will sort it out….no need for stimulus.” That’s the message of a hundred anti-stimulus articles.

The monster and glaring omission from nearly all these articles is any explanation as to exactly HOW the market gets out of a recession. The latter question was much debated in the 1930s. But, hey you don’t think the anti-stimulus red-necks have actually studied these debates do you?

There ARE actually two mechanisms via which the free market recovers from recessions: the Pigou effect and Say’s law. But Keynes concluded, quite rightly I think, that while these effects work in the long run “in the long run we are all dead”. I.e. these effects do work, but they work too slowly.

But don’t bother trying to find out what the anti-stimulus lobby think about Say or Pigou: most of them haven’t even heard of the two latter indivduals.

Examples of anti-stimulus articles:

1. by Greenspan (of all people):

2. This article is by Garett Jones, a Prof. at George Mason University. In addition to apparently never having heard of Say or Pigou, he seems to think that micro-economic laws work at the macroeconomic level: that is, he thinks that an all round wage cut reduces unemployment. Does he even know there is a distinction between macro and micro?

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