by Mainstream economics — replete with arrant nonsense Mainstream economics is replete with ideas that “everyone knows” to be true, but that are actually arrant nonsense. For example, “everyone knows” that: • Aggregate production functions (and aggregate measures of the capital stock) provide a good way to characterize the economy’s supply side; • Over a sufficiently long span—specifically, one that allows necessary price adjustments to be made—the economy will return to a state of full market clearing; and, • The theory of household choice provides a solid justification for downward-sloping market demand curves. None of these propositions has any sort of empirical foundation; moreover, each one turns out to be seriously deficient on theoretical grounds.
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Lars Pålsson Syll considers the following as important: Economics
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Mainstream economics — replete with arrant nonsense
Mainstream economics is replete with ideas that “everyone knows” to be true, but that are actually arrant nonsense. For example, “everyone knows” that:
• Aggregate production functions (and aggregate measures of the capital stock) provide a good way to characterize the economy’s supply side;
• Over a sufficiently long span—specifically, one that allows necessary price adjustments to be made—the economy will return to a state of full market clearing; and,
• The theory of household choice provides a solid justification for downward-sloping market demand curves.
None of these propositions has any sort of empirical foundation; moreover, each one turns out to be seriously deficient on theoretical grounds. Nevertheless, economists continue to rely on these and similar ideas to organize their thinking about real-world economic phenomena. No doubt, one reason why this situation arises is because the economy is a complicated system that is inherently difficult to understand, so propositions like these—even though wrong—are all that saves us from intellectual nihilism …
Is this state of affairs ever harmful or dangerous? One natural source of concern is if dubious but widely held ideas serve as the basis for consequential policy decisions. In this note, I examine one such idea, namely, that expected inflation is a key determinant of actual inflation.