Economists proved over half a century ago that certain stories are unfounded in the theory.
For example, one might think that if some workers are involuntarily unemployed,
a drop in real wages would lead to a tendency for the labor market to clear.
The Cambridge Capital Controversy revealed some difficulties. In response,
some economists turned to the Arrow-Debrue-McKenzie model of intertemporal
equilibria in which it is not clear that one could even talk about such concepts. The Mantel-Sonnenschein-Debreu theorem shows that this model lacks
empirical content. Utility theory provides a closure for some
models. Formally, one can demonstrate the existence of equilibria under
certain assumptions. But existence does not get one very far.
My purpose of this post is to note that some sawRead More »