The New Classical Counter-Revolution: A False Path for Macroeconomics
AbstractThis article contends that the "new" classical counter-revolution that began in the 1970s has been a false path for macroeconomics. Keynesian economics nicely explained the 1970s stagflation that followed the world oil price hike with a shift up of the supply curve in its AD/AS diagram. Lucas and Sargent ignored oil, could not explain the 1970s stagflation, and committed the fatal mistake of assuming instantaneous labor-market clearing. Barro assumed without empirical evidence that consumers entirely save any tax cut because they want to be ready to pay higher future taxes. Prescott's fatal mistake with real business cycles was the same as Lucas' and Sargent's. New classical economics has been characterized by mathematical manipulation of models fatally flawed by empirically unrealistic assumptions.
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Bibliographic InfoArticle provided by Eastern Economic Association in its journal Eastern Economic Journal.
Volume (Year): 31 (2005)
Issue (Month): 1 (Winter)
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Macroeconomics; New Classical; Prices; Supply;
Find related papers by JEL classification:
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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- Brian Snowdon, 2007. "The New Classical Counter-Revolution: False Path or Illuminating Complement?," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 541-562, Fall.
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