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Wednesday, January 30, 2013

We Can Become Ill in Different Ways

Imagine a bunch of nutritionists, each one of whom kept insisting that there was only a single form of nutritional problem. One tells us: "It's overeating! People only go wrong nutritionally when they have too many calories." Another says: "No, it is undereating! People become too frail." Yet another insists that the only problem is a diet with too much protein and not enough carbohydrates, and yet another that the only difficulty is the reverse.

I think that this is analogous to wars (often ideological) over the theory of the business cycle. Why should we believe there is only a single way in which the macroeconomy can become "ill"? And Gottfried Haberler agrees:

"Vertical maladjustments of each type on the one hand and horizontal maladjustments and insufficiency of total demand (insufficiency of money supply) on the other are quite compatible. To a certain extent they probably always go together and are frequently difficult to distinguish. Since many writers do not carefully distinguish these cases, it is often difficult to know which they have in mind." -- Prosperity and Depression, p. 132

1 comment:

  1. There's an alternative take that works on similar lines. It depends on how we define "business cycle." We can argue that ABCT is the only correct explanation of the "business cycle," but then acknowledge other causes of separate output shocks, such as real shocks (war, drought, et cetera).

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