David Lawson reviews the new book Demand Side Economics by Alan Harvey, at Steve Keen's Debtwatch. Lawson quotes from the book:
This “Demand Side” economics is not new. It was originated and developed by the great British economist John Maynard Keynes... It is called Demand Side economics because demand is the fundamental driver of economic progress and constraint in economic stagnation... We describe and display the demand side framework by following its development through the thought of a series of influential economists, beginning with Keynes...
Okay, but let me point out two things.
Second, in The General Theory (1936) Keynes wrote: All production is for the purpose of ultimately satisfying a consumer.
First, in The Wealth of Nations (1776) Adam Smith wrote: Consumption is the sole end and purpose of all production...
Iterated.
But anyway, it seems to me that Smith and Keynes both are saying production and consumption ... supply and demand.
Balance in all things. Especially these.
5 comments:
Balance, yes. But what is cause and what is effect?
JzB
I think Art's use of the term "balance" suggests that each can be causes , and each can be effects , depending on circumstances. I'm guessing also that Adam Smith and Keynes would never have suggested that economic activity was only and always , limited by one of the pair , and never the other.
When demand (consumption) is constrained , reduced supply (production) will be the result , and vice versa.
Clearly demand is going to be the limiting factor for economic activity - both in the U.S. and globally - for the foreseeable future , unless major structural changes are forthcoming.
As a rule , I think I'd lean towards the view that in economies like that of the U.S. , demand limitations will be the most common binding constraint , simply because we seem to repeatedly gravitate to a plutocratic "equilibrium" , with relatively impoverished masses. They don't call those post-WWII decades the "Golden Age" for nothing - they were the exception , not the rule.
OT , but since we were discussing Phillipon's papers on our bloated financial sector a while back , I thought you guys might like this related paper by Andrew Haldane :
http://www.bankofengland.co.uk/publications/Documents/speeches/2012/speech565.pdf
It covers the same ground as in his recent INET presentation ( i.e. the futility and resulting destruction of the "arms race" in finance ) , and he's as good a writer as he is a speaker.
You need two kids to make a teeter-totter work, two kids about the same size.
If you decide to feed one kid more and the other less, you can adjust the board but after a while it just won't work any more. The action will be lopsided.
Supply-side economics was not an attempt to balance things. It was an attempt to feed one kid more and the other less.
Keynes did not emphasize the demand side. He tried to restore balance to an economy that was out of balance. I object to the book's premise.
"All production is for the purpose of ultimately satisfying a consumer," is not particularly ambiguous. Without demand, supply is irrelevant - the classic example is the buggy whip.
But without supply, demand remains very relevant - someone will be clever enough to invent the desired widget, smuggle it in, or whatever it takes to get it into the end user's eager hands.
That's why all this Rethug talk about job creators is such egregious bull shit. Jobs are created by demand for things, not by tax cuts on the rich.
Remember the old saw that says necessity is the mother of invention?
It's demand pull, all the way.
JzB
I don't disagree with you, Jazz, but it misrepresents and undermines Keynes to describe him as a demand-sider.
Keynes said things like the rate of interest constantly tends to rise too high and quoted things like there is constantly at work a force which naturally operates to induce excess of thrift. Such tendencies are attributable to human nature, which is what makes them so persistent and also so difficult to eradicate.
Keynes recognized the tendency of the supply side to become dominant (or, of wealth to accumulate and to come to power) as the central problem of secular economics. But he was no a demand-sider.
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