Sunday, November 11, 2007

How to be Keynesian monetarist supply sider - econ 101

It's all about the time horizon:
Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal

I tell my undergraduates:

At a time horizon of 0-3 years, be a Keynesian: the most important things are the fluctuations in unemployment, in real demand, and in capacity utilization.

At a time horizon of 3-8 years, be a demand-side monetarist: you can assume (provisionally) that fluctuations in employment, real demand, and capacity utilization die out; the most important things are the fluctuations in the composition of real demand (investment vs. consumption vs. government vs. net exports) and in inflation- and deflation-causing nominal demand assuming (provisionally) stable growth of the economy's productive capacity.

At a time horizon of 8 years or greater, be a sane supply-sider: the most important things are the processes of investment in physical, human, and organizational capital that raise the economy's productive capacity.
I love the bloggers I read. Cheapest, quickest sense-rendering interface I've known.

2 comments:

brad said...

Why, thank you once again...

John Gordon said...

You're most welcome. Long may you enlighten us.