The wrong track also leads someplace

The wrong track also leads someplace: Milton Friedman’s presidential address at 50

Storm, S.T.H. (TU Delft Economics of Technology and Innovation)

2018

Milton Friedman’s presidential address to the American Economic Association holds a mythical status as the harbinger of the supply-side counter-revolution in macroeconomics – centred on the rejection of the long-run Phillips-curve inflation–unemployment trade-off. Friedman (seconded by Edmund Phelps) argued that the long run is determined by ‘structural’ forces, not demand, and his view swept the profession and dominated academic economics and macro policymaking for four decades. Friedman, tragically, put macroeconomics on the wrong track which led to disaster: secular stagnation, rising inequality, mounting indebtedness, financial fragility, a banking catastrophe and recession – and no free lunches. This is Friedman’s legacy. We have to unlearn the wrong lessons and return macroeconomics to the right track. To do so, this paper shows that Friedman’s (and Phelps’s) conclusions break down in a general model of the long run in which productivity growth is endogenous – aggregate demand is driving everything again, short and long.

Endogenous technological progress
Generalized NAIRU model
Monetary policy
Natural rate of unemployment

http://resolver.tudelft.nl/uuid:0f10de68-eb27-478f-9fff-ffdd6f950bf4

https://doi.org/10.4337/roke.2018.04.09

2020-03-01

2049-5323

Review of Keynesian Economics, 6 (4), 517-532

Institutional Repository

journal article

© 2018 S.T.H. Storm