Macro Miscommunication: How Keynesians and the Right Misunderstand Each Other
By Bryan Caplan
I know lots of Keynesian economists and lots of right-wing non-economists. I’ve spent decades in both worlds. In the process, I’ve noticed some recurring macroeconomic miscommunications between the two camps. Each takes something so much for granted that it can’t imagine that the other disputes it. As a result, they talk past each other, and fail to address the other side’s main concerns.
Most right-wingers take it for granted that printing money increases demand. As a result, they fail to realize that Keynesians often dispute this very point. When Keynesians claim that “quantitative easing won’t work,” they’re usually denying that printing money will actually lead to additional spending.
Most Keynesians, on the other hand, take it for granted that, when there’s significant unemployment, increasing demand will increase employment and output. As a result, they fail to realize that right-wingers often dispute this point. When right-wingers claim that “quantitative easing won’t work,” they’re usually denying that additional spending will lead to additional employment and output.
My own view is that both groups are largely correct about what they take for granted. Right-wingers are correct to take the money–>demand connection for granted. Keynesians are correct to take the demand–>employment/output connection for granted. In each case, there’s a simple, compelling mechanism at work. The money–>demand connection ultimately holds because when people have more purchasing power than they want, they spend it. The demand–>employment/output connection ultimately holds because nominal wage cuts hurt morale, and thereby productivity.
In any case, though, the path to better debate begins with understanding what the other side takes for granted and what it disputes. Hope this helps.