Macroeconomics 101 in two paragraphs

Not really — but this Brad DeLong essay contains two paragraphs that do an excellent job of explaining the complex interplay between what John Maynard Keynes and Milton Friedman believed: From one perspective, Friedman was the star pupil of, successor to, and completer of Keynes?s work. Keynes, in his General Theory of Employment, Interest and ...

By , a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast.

Not really -- but this Brad DeLong essay contains two paragraphs that do an excellent job of explaining the complex interplay between what John Maynard Keynes and Milton Friedman believed: From one perspective, Friedman was the star pupil of, successor to, and completer of Keynes?s work. Keynes, in his General Theory of Employment, Interest and Money, set out the framework that nearly all macroeconomists use today. That framework is based on spending and demand, the determinants of the components of spending, the liquidity-preference theory of short-run interest rates, and the requirement that government make strategic but powerful interventions in the economy to keep it on an even keel and avoid extremes of depression and manic excess. As Friedman said, ?We are all Keynesians now.? But Keynes?s theory was incomplete: his was a theory of employment, interest, and money. It was not a theory of prices. To Keynes?s framework, Friedman added a theory of prices and inflation, based on the idea of the natural rate of unemployment and the limits of government policy in stabilising the economy around its long-run growth trend ? limits beyond which intervention would trigger uncontrollable and destructive inflation. Hat tip: Greg Mankiw.

Not really — but this Brad DeLong essay contains two paragraphs that do an excellent job of explaining the complex interplay between what John Maynard Keynes and Milton Friedman believed:

From one perspective, Friedman was the star pupil of, successor to, and completer of Keynes?s work. Keynes, in his General Theory of Employment, Interest and Money, set out the framework that nearly all macroeconomists use today. That framework is based on spending and demand, the determinants of the components of spending, the liquidity-preference theory of short-run interest rates, and the requirement that government make strategic but powerful interventions in the economy to keep it on an even keel and avoid extremes of depression and manic excess. As Friedman said, ?We are all Keynesians now.? But Keynes?s theory was incomplete: his was a theory of employment, interest, and money. It was not a theory of prices. To Keynes?s framework, Friedman added a theory of prices and inflation, based on the idea of the natural rate of unemployment and the limits of government policy in stabilising the economy around its long-run growth trend ? limits beyond which intervention would trigger uncontrollable and destructive inflation.

Hat tip: Greg Mankiw.

Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner

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