First, I want to thank all the great commenters that have been making these points. I've been trying to study for a macro exam which means allowing myself a flurry of morning posting and then letting it be mostly. Obviously I've been in the comments, but it's nice to have commenters really keep it going. This is a really important issue. If things like this convince people that demand is not a problem or that Say won the argument with Malthus, that has bad consequences for the science and for real people today. That's why it's worth arguing with people with a platform like John Papola.
I wanted to respond to one last comment of John's. He writes: "I was very VERY explicit about what was a fallacy: that consumer spending can grow the economy. That's not calling all "demand-side stories" a fallacy by any stretch. It's calling underconsumptionism a fallacy... and it is... and there is a tragic amount of underconsumptionist-sounding rhetoric at all times being asserted by Keynesian economists and pundits."
So the "macro fallacy" songs were by Keynes and Malthus. Say and Hayek were both responding to the fallacies (Say's line was "hark I hear a fallacy...", the fallacy being Malthus's book which the narrator described as "defunct"). As I noted before, Keynes didn't even mention consumption in the video. He talked about "expenditure", "spending" and buying "toys". Malthus referenced both "consumption" and "spending".
And what was the "fallacy" that Say identified? He sang that the fallacy was "demand can grow the economy".
So John is blatantly misrepresenting his own video when he says that "That's not calling all "demand-side stories" a fallacy by any stretch". Of course it is John. You put a non-consumption specific demand side story in both Keynes and Malthus's mouth (along with a consumption-specific story in Malthus's mouth), which you highlighted as fallacies - and then you had Say correcting the fallacy by specifically rejecting demand-side stories.
John continues later in his comment: "And correct me if I'm wrong but isn't the Keynesian framework first and foremost about restoring a full-employment equilibrium and NOT long-run growth?"
Keynesians say that at full employment the "classical system" (what we'd talk about as neoclassical or some neoclassically-grounded growth theory) holds. If Keynesians are not concerned about long-run growth that's news to me. There are less disagreements in the area of long-run growth, if that's what you mean (some Post-Keynesians talk about demand-led long run growth but not all of them). John thinks this is relevant because: "I was EXPLICIT that I was talking about GROWTH. Growth is driven by increased productivity and efficiency that leads to more valuable output per person."
This doesn't seem right at all. There were references all over the video to the recession (it's the first and last thing the family talks about). They started the video talking about the recession. Keynes sang about recovery. Malthus sang about general gluts. Say is responding to general glut prospects. There are non-descript references to growth, but no references to long-run growth at all.
If you look at the video itself, he's clearly telling people demand-side stories are fallacious, which is a very bad thing. This isn't new. This is in all the videos. They show these videos in classrooms. I think I mentioned it before, but the 300 person freshman macro lecture I TAed last year showed The Boom and the Bust. There was some discussion afterwards and it was decidedly pro-Hayek's side. We hadn't covered Hayek's actual macro in the class - they were largely going off of the video (which is probably true of a lot of viewers). It's not good at all that in the middle of a major recession kids are getting taught that Say beat Malthus, that Hayek beat Keynes, and that the problem is not an aggregate demand problem. There is a lot to get out of Say and Hayek and a lot to criticize in Malthus and Keynes. But dismissing aggregate demand explanations of the crisis is counter-productive.
Noted for Your Morning Procrastination for March 6, 2015
19 minutes ago