Thursday, August 14, 2008

That Seventies Show?

Is stagflation back? The negative growth figures for the Eurozone, coupled with persisting high inflation and high (though moderating) oil prices, suggest as much. Oddly enough, the last round, in the Seventies, spelled the doom of Keynesian economics (as detailed here by James Galbraith); this time, owing to the credit collapse and the waning of faith in the markets-and-deregulation panacea, it might presage the return. But certain French economists seem intent on keeping the faith: Aghion, Algann, and Cahuc have joined up with André Shleifer to explain the "demand for regulation" as a consequence of endemic social distrust. Of course, as Galbraith points out, there are Keynesians (like his father) and Keynesians (like Samuelson, Solow, and Tobin), the signal distinction being between those who prefer stimulus via private consumption (via tax cuts) and those who prefer stimulus via government consumption (via taxation and spending on socially beneficial projects). The legitimacy of the latter does indeed depend on trust in both the wisdom of the public and the non-self-serving, public-spirited motivation of public officials.

Reactions of economists here.

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