You said: These are fundamental and rather simple distinctions. Keynes believes “animal spirits” cause endogenous demand shocks. Austrians, and Say, argue that endogenous demand shocks are impossible in a truly free market economy, with the exception of either government interventions or natural disasters and such.
EDIT: I misspoke - Demand shocks caused by government interferences and phenomena such as natural disasters and epidemics are exogenous demand shocks
I say: You also seem to have confused AS and AD. In any event, you made an important admission when you say: Austrians, and Say, argue that endogenous demand shocks are impossible in a truly free market economy, with the exception of either government interventions or natural disasters and such.
First, these three “exceptions” swallow the (absurd) rule. “and such”? Meaning? Second, you do not address the fundamental question: given that even the Austrians and Say admit there are “exceptions” to the rule, including “government interventions”, “natural disasters” and “and such” (which might include a human induced natural disaster, such as greed caused by hubris, aka the banking crisis?, but that’s another question that we need not address now), the central question is this: can Keynesianism over the short term move AD to get it “back to where it was”? Keynesians would argue yes, through the technique of the so-called Money Illusion (a term of art, I trust you know what that is). The Austrians, by your rule, are not clear as to how do so this, from what I could tell of their literature, except by hoping that by adopting a gold standard that magically things will either get back to normal (if your definition is accepted–I am surprised that you conceed AS will not change*), or, will never get out of normal (some of the literature that I’ve read, which implies the business cycle will be abolished if we adopt the gold standard–which contradicts your “government interventions”, “natural disasters” and “and such” as affecting the AD).
I will, if I don’t get censored by the ‘moderator’ (a Mises subscriber volunteer I’m sure), start a separate thread on Money Illusion.
“Thanks” for the conversation. I learned something about the Austrian school–they are more bizarre than the Jonestown devotees in some ways. How does that Kool-Aid taste, Austrian school?
RL
- IMO you made a damaging admission by saying AS is inflexible. The revolution called “Supply Side” during the 1980s made a point that given incentives, the AS could be changed so that my previous reply would hold–given a change in AD, so that, say, society wants less of everything at a given price, that AS could adjust so that more is produced to give the same equilibrium point, Q. Graphically, simply draw two upward sloping parallel lines (AS, AS’) and two downward sloping, parallel, AD lines (AD, AD’). The parallelogram represents the area of interest. Note the top of the diamond is Q0 (horizontal axis, representing quantity), prior to a shock in AD. The bottom of the diamond, vertically, that is at the same Q, represents the new quantity that we want to get to; while the ‘left’/‘west’ vertice represents the point when there is a decrease in AD (AD shifts to the left, down). How do we get to that ‘bottom’ diamond point, to get the same quantity as before the change in AD? Just look at the curves–increase AS so now the new intersection point is not the left corner of the diamond, but the bottom. That’s essentially what the Supply Siders claimed. No need to fiddle with AD–incentivize people to change AS. But, I am not going to make your case for you. You (and the Austrians and Say) have conceeded AS does not change. You have made your bed now you must lie in it. And Keynes and the anti-Supply Siders do make a good point (that you have implicitly accepted) that AS cannot easily change. This goes to the question of how quickly people can “retool”. The Keynesians accept that retooling is expensive, futile and doesn’t really work–and there is some evidence to support it. Better, say the Keynesians, to fiddle with AD with techniques such as Money Illusion (aka “helicopter drop”). More on that in a separate thread.