He writes about a statement by Brad DeLong that:
"Keynesians think $97B was created via this spending and taxes this year, which is why they love government spending regardless of what it is spent upon. But if they issued $100B in bonds to create this 'new demand', where would that $100B have have gone otherwise? I don't think this makes sense in general equilibrium. I guess if you could caricature the two views: one thinks supply creates its own demand, the other that demand creates its own supply."
I find the bolded point interesting, but not quite right. I think the better thing to say is:
"...the other that new demand creates its own supply when the economy is demand constrained, and supply creates its own demand when the economy is supply constrained, and market economies are demand constrained, not supply constrained"
Oh, and one could add: "Even when there is a balance between supply and demand, there is no guarantee that that balance will be struck at a full employment level"
For the umpteenth time, I'll remind people that a clearing labor market is not the same thing as a full employment labor market.
The Renaissance Began in 1000
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