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Thursday, June 12, 2014

'Synthesis Lost'

As someone who had a series called "Market Failures in Everything" when this blog first started over nine years ago, and as someone who believes market failures remain important even when the economy is operating at full capacity, I'm glad to see views evolving. (Market failures and business cycles form the basis for my calls for government intervention, though as I have written many times, I am coming around to the idea the intervention may also be needed to redistribute income as an offset for those who reap where they never sowed. That is, redistribution is needed to claw back income that flows unjustly according to my definition of equity to those at the top as a result of their economic and political power, e.g. monopoly power that distorts incme flows, and political power that allows rent-seeking behavior. Markets have had 40 years to solve the inequality problem, and it has only gotten worse -- being at full employment for many of those years has not reversed the growing inequality problem. A "hands off" policy when the economy is operating at full capacity, a capacity that can be limited by market failures, is not helpful in this regard.)

This is from Paul Krugman:

Synthesis Lost: Brad DeLong has some notes on the evident trouble we’ve been having maintaining the “neoclassical synthesis” — the doctrine, made famous by Paul Samuelson but actually there in Keynes too, that macroeconomic policy is needed for full employment but once you have that a relatively free-market policy works.

As it happens, I wrote a longish post about this back in 2010. ...

I’d add that I agree with Robert Waldmann: the policy judgement that you shouldn’t have too much detailed government intervention mainly reflects an appreciation for imperfect government, not faith in perfect markets.

And I still think that the Keynes/Samuelson view is reasonable, although market imperfections loom larger in my mind than they used to. But these are not reasonable times …

    Posted by on Thursday, June 12, 2014 at 08:38 AM in Economics, Income Distribution, Market Failure | Permalink  Comments (86)

          


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