April 12th, 2007 by Hafiz Noor Shams
Approximately 40 years after the debate began, the battle between supply-siders and the Keynesians (and to some extent, monetarists) continues.
It first came to surface with Bruce Barlett’s article at the NYT:
Today, hardly any economist believes what the Keynesians believed in the 1970s and most accept the basic ideas of supply-side economics — that incentives matter, that high tax rates are bad for growth, and that inflation is fundamentally a monetary phenomenon. Consequently, there is no longer any meaningful difference between supply-side economics and mainstream economics. [How Supply-Side Economics Trickled Down. Bruce Bartlett. NYT April 6 2007]
Mark Thoma at the Economist’s View enlightens his readers on the difference between supply-side and New Keynesian schools…:
There is much more to say about all of this, I haven’t even mentioned New Classical models, but that will have to do for now. Summarizing, contrary to what is implied in Bruce Bartlett’s commentary, there are two distinct schools in economics, the RBC school and the NK school, and they have very different policy implications. Not everyone will agree with this, and that is the point I suppose, but I would argue that the mainstream view today is the NK model, though the RBC school has strong advocates and has made important contributions to our thinking (the long-run incentives Bruce Bartlett mentions are a good example). [Bruce Bartlett: How Supply-Side Economics Trickled Down. Economist's View. April 6 2007]
…while DeLong gives a little bit summary of what is going on the next day:
Mark Thoma quotes large chunks of Bruce Bartlett’s views on supply-side economics… [A Very Good Conversation on Supply-Side Economics. Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal. April 7 2007]
Then, it is Paul Krugman at Economist’s View, defending Keynesianism:
The key thing is that good Keynesianism, as embodied even in undergrad textbooks of the time, was *perfectly OK*: Dornbusch and Fischer, 1978 edition, offered a description of what disinflation would look like that matches the experience of the 80s reasonably well, and the textbook does not seem all that dated even now. The idea that we needed a new doctrine to get our heads straight is just all wrong. [Supply-Side Economics: Paul Krugman Responds. Economist's View. April 11 2007]
James Galbraith on his opposition to supply side and monetarism:
Brad DeLong’s summary of Bruce’s summary of our vulgar Keynesian policy beliefs is, here, reasonably close to the mark, except in one respect. No one in my circle doubted the capacity of monetary policy to crush the economy if pushed sufficiently far. Rather, we believed (accurately, as events would prove), that monetary policy worked against inflation *only* insofar as it brought on a brutal recession. We did not accept the monetarist/supply-side claim, which was presented at the start of the Reagan administration in official projections, that the trick could be pulled off without a recession. We were, of course, perfectly right about that.
Second, as a matter of economics, we thought that the combination of supply-side economics and monetarism was fundamentally incoherent — and we were well aware that the supply-siders and monetarists disagreed with each other more violently than they disagreed with us. As an anti-monetarist and one of the very few Democrats willing to criticize the sainted Paul Volcker, I found myself in rough alliance with the supply-siders more than once (and I have a few handwritten notes from Jack Kemp in my files somewhere). [Jamie Galbraith Speaks for the "Vulgar Keynesians". Economist's View. April12 2007]
Watch those comments at the Economist’s View.