The prolific writings of Marc Lavoie and Mario Seccareccia include outstanding contributions to Keynesian macroeconomics, macro modelling, the analysis of fiscal and monetary policymaking, theories of (endogenous) money and credit, and political economy in general. One thread that runs through their papers and books over their long and distinguished careers is a critical examination of conventional neoclassical or ‘New Consensus’ economics, often with a particular focus on its approach to money and interest rates. This chapter takes up this thread and focuses on the revival of the Wicksellian loanable funds model in the (policy) discussions on the secular stagnation of the advanced economies, in particular of the US. Mario Seccareccia and Marc Lavoie have consistently argued against the relevance of this model for a monetary production economy, and this chapter, which acknowledges the cogency, clarity and power of their analyses, puts forward the main criticisms of the loanable funds argument in six points.
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.