Green Friedman

Econospeak has been having a debate about whether aggregate supply/aggregate demand models are actually any use in economics, which is important because pretty much everyone who does a macroeconomics class gets taught them, like me.

One of the things I remember being dissatisfied with was how to reconcile the long-run aggregate supply curve with the idea of economic growth. If growth is a thing, it means the production possibilities of the economy are increasing. Therefore, the long-run aggregate supply curve is shifting outwards, and further, it’s also dependent on economic growth in the past. If you think capital formation is important – i.e. you’re either a capitalist or a Marxist – I don’t think you can convincingly deny this.

If the LRAS is actually vertical, and therefore stimulating the economy just means inflation, how can the economy be growing? Now, you could argue that perhaps it’s not. Perhaps it’s a zero sum activity. But the people who are most aggressively capitalist are also the ones who deny the most vigorously that this is a problem.

Logically, if you think we’re permanently on the historic planetary production-possibility frontier, you ought to be a super-deep green who believes that economic growth is harmful.

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