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The New Classical Counter-Revolution: A False Path for Macroeconomics

Author

Listed:
  • Laurence S. Seidman

    (Department of Economics, University of Delaware)

Abstract

This article contends that the "new" classical counter-revolution that began in the 1970s has been a false path for macroeconomics. Keynesian economics nicely explained the 1970s stagflation that followed the world oil price hike with a shift up of the supply curve in its AD/AS diagram. Lucas and Sargent ignored oil, could not explain the 1970s stagflation, and committed the fatal mistake of assuming instantaneous labor-market clearing. Barro assumed without empirical evidence that consumers entirely save any tax cut because they want to be ready to pay higher future taxes. Prescott's fatal mistake with real business cycles was the same as Lucas' and Sargent's. New classical economics has been characterized by mathematical manipulation of models fatally flawed by empirically unrealistic assumptions.

Suggested Citation

  • Laurence S. Seidman, 2005. "The New Classical Counter-Revolution: A False Path for Macroeconomics," Eastern Economic Journal, Eastern Economic Association, vol. 31(1), pages 131-140, Winter.
    • Handle: RePEc:eej:eeconj:v:31:y:2005:i:1:p:131-140
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume31/V31N1P131_140.pdf
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    Citations

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    Cited by:

    1. W D A Bryant, 2009. "General Equilibrium:Theory and Evidence," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6875, September.
    2. Brian Snowdon, 2007. "The New Classical Counter-Revolution: False Path or Illuminating Complement?," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 541-562, Fall.
    3. Alexandre Flávio Silva Andrada, 2014. "Um Estudo Do Discurso Doutrinário De Robert E. Lucas Jr. Método E História Das Ideias Acerca Das Análises De Ciclos Econômicos," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41st Brazilian Economics Meeting] 005, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    4. Boris Salazar & Daniel Otero, 2015. "La revolución de los nuevos clásicos: redes, influencia y metodología," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 17(32), pages 39-69, January-J.
    5. Sarah F. Small & Laura Beltran Figueroa & Leah Masci & Nishu Mehrish & Iris Riddiford Graham & Steven Pressman, 2024. "A History of the Eastern Economic Association: 50 Years of Finding Space for Pluralism and Inclusion in Economics," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 50(4), pages 441-471, October.
    6. Paul Oslington, 2012. "General Equilibrium: Theory and Evidence," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 446-448, September.

    More about this item

    Keywords

    Macroeconomics; New Classical; Prices; Supply;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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