Earth Economics An Introduction to Demand Management, Long-Run Growth and Global Economic Governance
An Introduction to Demand Management, Long-Run Growth and Global Economic Governance
Chapter 9: Puzzling Disagreements
Economists disagree a lot. Winston Churchill observed once: ‘If you put two economists in a room, you get two distinct opinions, unless one of them is Lord Keynes, in which case you get three opinions’. Most of the time the disagreement amongst economists is about the value of the parameters of the model. Many discussions between economists can be related to their point of reference regarding the curvature of the IS and LM curves and their location vis-à-vis the long-run macroeconomic supply functions. So in a debate we can find Monetarists to be somewhere on the right-hand part of the LM curve while Keynesians are more on the left-hand segment. Both can be right, but not at the same time! The Monetarist school was probably right in the 1980s; the Keynesian recipe became the tune of the day during the initial responses to the financial and economic crisis that started in 2007. Indeed, the validity of a theory depends on conditions of time and place. Experienced economists recognize that the parameters are not fixed for eternity, but critically depend on conditions of time and place. The upshot is that a particular version of a model or a theory may be appropriate for a particular country or for a particular period in time. But once conditions change, as they ultimately always do, a different version may become more relevant.
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