I have just submitted the paper to the European Journal of the History of Economic Thought. The updated version is not substantively different from the previous version, but I have cut some marginally relevant material and made what I hope are editorial improvements. Here’s a link to the new version. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4260708 Any comments, questions, criticisms or suggestions would be greatly appreciated. I hope to post a revised version of my paper “Between Walras and Marshall: Menger’s Third Way” on SSRN within the next week or two. In my previous post I cop ..read more

Last November I posted a revised section of a paper I’m now working on an earlier version of which is posted on SSRN. I have now further revised the paper and that section in particular, so I’m posting the current version of that section in hopes of receiving further comments, criticisms, and suggestions before I submit the paper to a journal. So I will be very grateful to all those who respond, and will try not to be too cranky in my replies. I         Fisher’s model and the No Favorable Surprise Assumption Unsuccessful attempts to prove, under standard ..read more

A couple of days ago, I wrote post gently (I hope) chiding Olivier Blanchard for what seemed to me to be a muddled attempt to attribute inflation to conflicts between various interest groups (labor, capital, creditors, debtors) that the political system is unable, or unwilling, to resolve,leavin, those conflicts to be addressed, albeit implicitly, by the monetary authority. In those circumstances, groups seek to protect, or even advance their interests, by seeking prices increases for their goods or services, triggering a continuing cycle of price and wage increases, aka a wage-price spiral. M ..read more

Peter Howitt, whom I got to know slightly when he spent a year at UCLA while we were both graduate students, received an honorary doctorate from Côte d’Azur University in September. Here is a link to the press release of the University marking the award. Peter wrote his dissertation under Robert Clower, and when Clower moved from Northwestern to UCLA in the early 1970s, Peter followed Clower as he was finishing up his dissertation. Much of Peter’s early work was devoted to trying to develop the macroeconomic ideas of Clower and Leijonhufvud. His book The Keynesian Recovery collects those impor ..read more

Once again, the estimable Olivier Blanchard is weighing in on the question of inflation, expressing fears about an impending wage-price spiral that cannot be controlled by conventional monetary policy unless the monetary authority is prepared to impose sufficiently tight monetary conditions that would entail substantially higher unemployment than we have experienced since the aftermath of the 2008 financial crisis and Little Depression (aka Great Recession). Several months ago, Blanchard, supporting Larry Summers’s warnings that rising inflation was not likely to be transitory and instead woul ..read more

As I’ve pointed out many times on this blog, equilibrium is an extremely important, but very problematic, concept in economic theory. What economists even mean when they talk about equilibrium is often unclear and how the concept relates to the real world as opposed to an imagined abstract world is even less clear. Nevertheless, almost all the propositions of economic theory that are used by economists in analyzing the world and in making either conditional or unconditional predictions about the world or in analyzing current or historical events are based on propositions of economic theory ded ..read more

In 1978 Robert Lucas and Thomas Sargent launched a famous attack on Keynes and Keynesian economics, which they viewed as having been discredited by the confluence of high inflation and high unemployment in the 1970s. They also expressed optimistism that an equilibrium approach to business-cycle modeling would succeed in replicating reasonably well the observed time-series variables relating to output and employment. In particular they posited that a model subjected to an unexpected monetary shock causing an immediate downturn from an equilibrium time path would be followed by a gradual reversi ..read more

In a famous contribution to a conference sponsored by the Federal Reserve Bank of Boston, Robert Lucas and Thomas Sargent (1978) harshly attacked Keynes and Keynesian macroeconomics for shortcomings both theoretical and econometric. The econometric criticisms, drawing on the famous Lucas Critique (Lucas 1976), were focused on technical identification issues and on the dependence of estimated regression coefficients of econometric models on agents’ expectations conditional on the macroeconomic policies actually in effect, rendering those econometric models an unreliable basis for policymaking ..read more

Without searching through my old posts, I’m confident that I’ve already made this point many times in passing, but I just want to restate this point up front — highlighted and underscored. Any economic model must satisfy the following rational-expectations condition: If the agents in the model expect the equilibrium outcome of the model (or, if there are multiple equilibrium outcomes, they all expect the same one of those equilibrium outcomes), that expected equilibrium outcome will be realized. When the agents in an economic model all expect the equilibrium outcome of the model, the agents ma ..read more

This post started out as a short Twitter thread discussing the role of supply shocks in our current burst of inflation. The thread was triggered by Skanda Aramanth’s tweet arguing that, within a traditional aggregate-demand/aggregate-supply framework, a negative supply shock would have an effect sufficiently inflationary to cause the rate of NGDP growth to rise even with an unchanged monetary policy if the aggregate-demand curve is highly inelastic. Skanda received some pushback on his contention from those, e.g., George Selgin, who dismissed the assumption of an inelastic aggregate demand as ..read more