Naked Capitalism has the article Tom Ferguson: Monetary Policy Can’t Levitate a Broken Economy.
Two generations ago, almost every economist knew what a catastrophe a deficiency of effective demand could create. And in a real crunch, they knew what to do about that. They realized you couldn’t push on a string, so somebody — the government — had to borrow and spend when private markets would not. From the 1980s on, though, the fundamental Keynesian point — the Principle of effective Demand —disappeared in a cloud of statistical double-talk that, when you deconstruct it, turns out to imply estimating potential output as a lagged function of whatever foolish policy is being pursued.
Of course I like this article. This is what I have been trying to tell people for more than the 10 years I have been publishing this blog. I have been waiting for someone to talk about pushing on a string so I could quote them, and not pretend that I invented the phrase.
Running across this article is a rather fortuitous bit of luck given my previous post Deficits Matter, Paul Krugman Doesn’t. Paul Krugman is one of those economists who learned his economics two generations ago like I did. Krugman’s problem and my good fortune is that he made a living being a noted economist while I had to work as an electrical engineer. He had the privilege of being on top of the economic thinking of the 1980’s to participate in making “the fundamental Keynesian point — the Principle of effective Demand — disappeared in a cloud of statistical double-talk.” Since I was too busy earning a living in my profession, I failed to realize that what I had learned about economics in college was being dismissed by the professionals. Now that I am retired and can pay more attention to economics, and it has become obvious that what I learned in college was correct, I can be ahead of the game compared to some of the professionals that sold themselves a bill of goods.