So, I was pretty interested in Casey Mulligan’s long term thesis but now I suspect that this is just a giant case of us talking past one another. In a summing up post Casey states
There is still no evidence to confirm the fundamental Keynesian proposition that supply doesn’t matter.
That was the fundamental proposition? I don’t think we had to go through all of this to see that this isn’t true and I am not sure who really thinks it is.
Here we go: Its 2008. The global economy is entering recession and arguably a liquidity trap. Suddenly a virus breaks out in Silicon Valley that spreads like lightening, killing every person there. Steve Jobs is dead. Mark Zuckerburg is dead. Sergey Brin and Larry Page are dead. All of their engineers and programmers are dead. And, the same holds for every company, university and laboratory in Northern California.
Effect on America? Show of hands for no effect whatsoever?
I’ll just assume that no one raises their hand.
In contrast I thought the question we were trying to answer is: how is it possible that output can collapse without an apparent decrease in supply?
How is it possible that the US can have the same number of machines, the same number of workers and the same technological know-how yet nonetheless is producing less of the things that people want then it was a year before?
This is the core question.