... but it seems like various things I think about lead me back to it from time to time, so it's worth asking: "what reason do we have to expect that a market economy will operate at its full potential?"
And to clarify, I think in a lot of cases the market economy does operate at close to its full potential. I don't doubt that's the case. I think it's just important to have a sensible answer to the question of why it does.
If the answer is of the "people don't leave profit opportunities unexploited" variety, I think I accept the premise but not the conclusion. It's true. People don't leave profit opportunities unexploited. But this just turns it into a chicken-and-egg problem. Profit is revenue minus cost. Revenue is what people are able and willing to pay for a product in the market. Let's assume for the sake of argument that our wants are unlimited, but our ability to satisfy those wants clearly isn't. So the existence of a profit opportunity to exploit is contingent on ability to pay.
So what guarantees that ability to pay is such that profit opportunities are such that the market economy will operate at its full potential?
Since ability to pay is a question of income, and since income and output are the same thing in the aggregate, we're right back to the same question we started with.
As I've said before, Say's Law properly understood and with allowances for hoarding and such certainly has its uses. Someone unconcerned with the caveats and qualifications can even say that Say's Law guarantees a balance will be struck between supply and demand.
But I'm not sure why I should care about that balance in and of itself. Say's Law says nothing about whether the balance will be struck at a full employment level.
Krugman Then Vs. Now, Bask
6 hours ago