| akuma587 said: There is no economic model than can adequately describe every economic phenomenon. Saying that staglation "disproves Keynsian economics" is extremely short-sighted. By that logic, the recent economic phenomenon has disproved the assumption that markets are self-regulating, and that businesses act in their own long-term self-interest at all times (which the entire banking sector disproved). So I guess that means that we disproved neoclassical economics. |
Keynsian economics is based on the assumption that you can't have inflationary pressures unless the economy is at capacity and you can therefore spend money with no consequences to bring an economy up to full capacity ... Stagflation demonstrates that an out of control money supply (from too much liquidity or too much government spending) can lead to high inflation even in an economy that is far below capacity.
The current economic crisis disproves nothing because markets were not given an adequate time to correct themself ... People don't ever suggest that markets will self regulate in a timely or clean fashion, just that they will correct themself. In 5 to 10 years the colapse of major players in the financial sector or American automobile manufacturers would have been a distant memory as better managed companies filled the void created by these companies, and produced better products or services at a lower cost.
