War of Ideas

War of Ideas - War of Ideas War There is an ideological war...

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Unformatted text preview: War of Ideas War There is an ideological war between the There French and the English. French You will be surprised to learn that most You conservatives side with the French. conservatives War of Ideas War The French The economist is J.B. Say. Say. The English The economist is John Maynard Keynes. Maynard Say’s Law Say’s Law Tout travail cree sa propre consommatio n Ricardo traitor to the Crown Ricardo Agreed with Say’s Agreed law that “supply creates its own demand” demand” And endorsed And another French sounding idea Laissez fair Laissez Say’s Law at the movies Say’s Supply creates its own Demand! The challenger’s reply The Although the idea of laissez I beg to differ. Supply faire is admirable and might be does not create demand. It applicable in the long run, please remember that we are all is a tempestuous dead in the long run! interaction and sometimes the opposite is true. Business Cycle Business Economic Boom Real Output (GDP) is my o con E r ove g w in gro a io per g lo n d Recession However in the short run it is erratic! Time Growth Trend Two ways of looking at the Business Cycle Cycle One could look at the long One run One can consider the short One run erratic behavior of the cycle as statistical noise cycle One can argue leave it One alone and applaud the market’s long run performance. performance. One could look at the short One run One can argue the macro One economy is unstable and can lead to undesirable outcomes outcomes One can argue some entity One (government) has to step in and correct for this erratic behavior! erratic Laissez Faire Laissez This is the long run view These economist argue the market through These will correct flexible prices and wages flexible itself! itself! They believe unsold goods and unemployed They lbut both would disappear as soon as people abor but can and will emerge, have time to adjust prices and wages. have Keynesian View Keynes asserted that a market driven Keynes economy is inherently unstable. economy He argued that expectation (psychology) of He consumers and business is determined by the short run market performance. the Although he believed in the long run Although performance of the market system, he argued that we are all dead in the long run! (remember he was trying to save capitalism!) (remember Proving his point Proving Keynes attacked the idea of Say’s by Keynes showing: showing: Prices do not correct for the Prices not macroeconomic failure macroeconomic The Historical Record The 1900-1940 24 20 Unemployment 16 12 8 4 0 –4 Inflation –8 1900 1910 1920 1930 1940 During the 1970s This Pattern Changed Changed During the 1970s this pattern of high During unemployment and falling prices did not hold. hold. Leading to the revival of laissez faire Leading schools of thought! schools The Historical Record The 1930-2000 During war time Government Spending Increases 20 20 WWII 15 Reagan’s increased Cold War spending Korean War 10 Vietnam War 5 3 0 10 5 3 0 –5 –5 –10 15 15 End of Vietnam War Great Depression WWII Ends End of Cold War –10 –15 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 ...
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