Wednesday, June 15, 2011

Tyler Cowen on Say and Keynes

Since Wealth of Nations and The General Theory are still fresh on my mind from the spring, I found Cowen's 1982 essay "Say's Law and Keynesian Economics" in the book Supply-side Economics: A Critical Appraisal a timely read. It really spells out much of what has been re-hashed out on the blogosphere in the last couple years, particularly between Brad Delong and Nick Rowe. In the conclusion:

"An advocate of Say's Law may still be a 'demand-sider' inasmuch as he admits that it is consumer demand that directs production and that the ultimate purpose of all production is to satisfy such demand. However, Say's Law is still 'supply-side' in the sense that it claims that production, not consumption generates income and that there can be no consumption without production. A grafting on of supply-side considerations to the Keynesian model would not shore up the model-- it would destroy it...One must accept either Say's Law or Keynes's Law, for the two are not compatible."
In the footnotes, Cowen makes the point that he "is not" a modern supply-sider "despite his agreement with much of the supply-side criticism of Keynesian economics." I think that describes me as well. (And doesn't it describe many New Keynesians like Greg Mankiw and Ken Rogoff?)

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