Wednesday, February 23, 2011

Sumner back to demand collapse

I’ve always agreed that there is some truth to these two arguments, but have also insisted that our problems are mostly demand-side. Scott Sumner on the Money Delusion
I am not sure what we call demand and supply. But look at the graph of price indices:


As near as I can tell, producers collapsed under the apparent shortages of inputs. Do we call that producers failure to demand inputs, or failure to produce outputs?  However it is defined, some large partition of the economy, upstream from the consumer, no longer had the energy efficiency to continue.  The normal solution for this is a search for better energy efficiency.

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