Who Said It?
By Bryan Caplan
Eventually, however, the war spread to the very issue of whether unemployment in recessions in involuntary… Sweetwater economists began to respond to the natural gravitational pull of the assumptions of optimization and well-functioning markets, which tend to rule out the possibility of involuntary unemployment. Saltwater economists were outraged – Franco Modigliani (Nobel, 1985) once protested, “Was the Great Depression nothing but an outbreak of laziness?” Sweetwater economists, notably Edward Prescott, believe that unemployment indeed can be explained by changes in the incentive to work, rather than the Keynesian mechanism of effective demand failure.
In my view, if we use the “prediction machine” concept of economics, then Keynesian Saltwater economics works better…
…Herbert Stein once wrote that although economists do not know very much, noneconomists know even less. Similarly, I would say that Saltwater economists do not know very much macroeconomics. However, Sweetwater economists, who deny that there is such a thing as involuntary unemployment, know even less.
My question for the author, whoever he may be: “Are Keynesian predictions really more accurate? Or is the Keynesian story simply more introspectively plausible?”