: Macro Economics- How does classical economics explain its confidence in the ability of natural forces to retu?
Macro Economics- How does classical economics explain its confidence in the ability of natural forces to return the economy to its potential level of real GDP?
Answers and Views:
Answer by simplicitus
It doesn’t.
1. Classical economics is very limited – it does not even try to deal with behavior over time. Classical economists believed (faith unsupported by either theory or data) that the forces would act so quickly that there would never even be recessions (two quarters of decreasing GDP)
Since, of course, reality has indicated that there are recessions, something had to give. That’s why economics has advanced beyond the classical. Those who want to cling to as much of the classical theory as possible are the new classical economists.
https://en.wikipedia.org/wiki/New_classical_macroeconomics
2. One frequently used excuse was Say’s law.
https://en.wikipedia.org/wiki/Say’s_law
But Say’s law is so obviously wrong that even Say himself saw that the law was wrong:
https://delong.typepad.com/sdj/2010/07/after-the-british-financial-crisis-and-depression-of-1825-6-jean-baptiste-say-was-too-smart-to-believe-in-says-law.html
That doesn’t prevent people from clinging to it:
https://www.project-syndicate.org/commentary/consolidators-versus-stimulators
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