I don't think one can or should put most of the blame for the 2008 output collapse or the weak recovery on dear oil, but I do think there is a story here that is important. Economist BlogThe problem with oil shortages is that it invalidates the Great Exogenous (Book of No Shortages Allowed):
That's a wow statement. It's profoundly uneconomic. Government doesn't face the same borrowing constraints as a household. It seems clear that the government can afford current levels of spending.Ryan againNot when there is an oil shortage! The political issue is that Keynesians want the economy changed by law to support their theory and ignore oil shortages.
I have watched the Keynesian hysteria each time we have an oil prices surge. Rather then talk to a delusion, I have concluded that we need the Hysterical Response Function in the model.
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