Friday, December 27, 2013

Robert Solow as a Keynesian

deficit reduction is bad policy in an economy that is not fully using the productive capacity it already has. What that economy needs is more buyers, not fewer. Deficit reduction can be good policy, growth-promoting policy, when the economy is fully employed and needs to generate new capacity.

There is no point in appealing to “the long run.” The long run is not some particular time in the future. Every quarter, every year, is the short run when it is happening. What economists usually mean when they say that something will be true in the long run is “when the economy has settled down to a well-behaved equilibrium,”

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