I am not even sure what to make of this, but in a note relating to the Keynes-Hayek debate Edmund Phelps writes
What now do we do? With some luck, the economy will
“recover” through a return of investment activity to sustainable
levels once some capital stocks, like houses, have been worked
down. But it will not recover to a strong level of business activity
unless something happens to boost innovation. The great question
is how best to get innovators humming again through the breadth
of the land. Hayek himself said little on innovation. But at least he
had an applicable theory of how a healthy economy works.
The Keynesians, sad to say, show no understanding of how
the economy works. They think they can lever employment up or
down by pushing buttons – as if the economy were hydraulic. They
show no grasp of the concepts that would be necessary to restore us
to prosperity and flourishing. In an old image that applies well to
the posturing of today’s self-styled Keynesians, “the Emperor has
So obviously there is the general mincing of welfare and macroeconomic notions. Does anyone seriously doubt that the government can lever up down employment by pushing buttons? Suppose that anyone found having a job was shot on sight. Show of hand for how many think this would lower employment.
Suppose I drafted all citizens between the ages of 16 and 65, do you think this would raise employment?
But, lets leave that aside since a lot of folks get confused over the difference between welfare and economic aggregates.
What is anyone to make of the statement that a
a strong level of business activity unless something happens to boost innovation
How can that possibly be anything other than a monetary statement, which Phelps rejects as a cause for the slump. Accept for concerns over monetary policy what at all would innovation have to do with business activity?
It is clear why you could not get economic growth without innovation but the vast majority of business activity over the course of human history have been in economies that were not growing.
Indeed, the vast majority of business activity that occurs from now until the end time will almost certainly be in economies that are not growing. Sustained per capita growth is an odd thing that just started recently and will likely end in fairly short span of time.
I hate to put it this way but I cannot read this without wondering, if this is what Edmund Phelps thinks, then what do most people think?