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War of Ideas

War of Ideas. There is an ideological war between the French and the English. You will be surprised to learn that most conservatives side with the. French. The French economist is J.B. Say. The English economist is John Maynard Keynes. War of Ideas. Say’s Law.

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War of Ideas

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  1. War of Ideas • There is an ideological war between the French and the English. • You will be surprised to learn that most conservatives side with the French.

  2. The French economist is J.B. Say. The English economist is John Maynard Keynes. War of Ideas

  3. Say’s Law Tout travail cree sa propre consommation

  4. Ricardo traitor to the Crown • Agreed with Say’s law that “supply creates its own demand” • And endorsed another French sounding idea Laissez fair

  5. Say’s Law at the movies Supply creates its own Demand!

  6. The challenger’s reply Although the idea of laissez faire is admirable and might be applicable in the long run, please remember that we are all dead in the long run! I beg to differ. Supply does not create demand. It is a tempestuous interaction and sometimes the opposite is true.

  7. Economic Boom Real Output (GDP) Recession Time Business Cycle Growth Trend Economy is growing over a long period However in the short run it is erratic!

  8. One could look at the long run One can consider the short run erratic behavior of the cycle as statistical noise One can argue leave it alone and applaud the market’s long run performance. One could look at the short run One can argue the macro economy is unstable and can lead to undesirable outcomes One can argue some entity (government) has to step in and correct for this erratic behavior! Two ways of looking at the Business Cycle

  9. Laissez Faire • This is the long run view • These economist argue the market through will correct itself! • They believe unsold goods and unemployed labor can and will emerge, flexible prices and wages but both would disappear as soon as people have time to adjust prices and wages.

  10. Keynesian View • Keynes asserted that a market driven economy is inherently unstable. • He argued that expectation (psychology) of consumers and business is determined by the short run market performance. • Although he believed in the long run performance of the market system, he argued that we are all dead in the long run! (remember he was trying to save capitalism!)

  11. Proving his point • Keynes attacked the idea of Say’s by showing: • Prices do not correct for the macroeconomic failure

  12. 24 20 Unemployment 16 12 8 4 0 – 4 Inflation – 8 1900 1910 1920 1930 1940 The Historical Record1900-1940

  13. During the 1970s This Pattern Changed • During the 1970s this pattern of high unemployment and falling prices did not hold. • Leading to the revival of laissez faire schools of thought!

  14. 20 20 15 15 10 10 5 5 3 3 0 0 –5 –5 –10 –10 15 –15 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 The Historical Record1930-2000 During war time Government Spending Increases WWII Reagan’s increased Cold War spending Korean War Vietnam War End of Cold War End of Vietnam War Great Depression WWII Ends

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