Ignorance or ill will? Stephen D. Williamson in denial about aggregate demand
from Merijn Knibbe
Last week I read the rightly famous Paul Krugman essay ‘How did economists get it so wrong’ (
September 2, 2009
). In this essay he suggests that present day ‘freshwater economists’, i.e. hard core market fundamentalists, are not only far to the right of people like Milton Friedman, de facto denying involuntary unemployment, but also do not know about Keynesian economics anymore. Krugman seems to understate the case.
Even the accounting concept of ‘aggregate demand’, which is not rooted in Keynesian economics but in the statistics of National Accounting (the system which measures total wages, total profits, total retail sales, total exports and imports and the like), seems to be alien to at least one of them. In a discussion with Mark Thoma, in which Williamson calls Thoma 'Grumpy Thoma', Stephen D. Williamson states that he does not know what aggregate demand is – and he seems to be genuine about this:
Grumpy Thoma and Ill Will: a curious conversation between to well-educated gentlemen with some sobering remarks of innocent bystanders. Act one, scene one.
Say Thoma: Saying that inflation is always and everywhere a monetary phenomena, and that prices depend upon the amount of outside money in the system, doesn’t answer the question about how we get inflation before aggregate demand kicks up.
Says Williamson: I don’t know what “aggregate demand” is. That’s in a language I can’t make any sense of.
Says anonymous 1 If you don’t like the concept of aggregate demand, then say so respectfully. No need to be so condescending and arrogant about it. Moreover, since most observers accept this notion or something similar to it, you need to explain why you are critical of it rather
Says Williamson: To use the term “aggregate demand,” I have to buy into a whole modeling framework that I think is not useful. To talk to me in terms that make sense to me, Mark has to get down to the economics of what the exogenous shocks or endogenous mechanisms are that he wants to think about.
Says anonymous 2: Aggregate demand: by accounting definition, this is C+I+G+Ex. It’s the way we measure the macro-economy. … You might try to take a refresher course in National Accounting, there is something like total investments, total consumption and the like – seems you can’t make sense of the language of National Accounting.
P.S. 1. Krugman seems to have moved beyond his 2009 position and nowadays also mentions Minsky, deleveraging and National Accounting concepts in his blogs and op eds. Anonymous 2 is me – I had trouble getting my name on the blog.