148I shw that Walras’ Law mst e geeralized r a redit emy t what I all the “Walras-Shmpeter-Misky Law”. The empirial data strgly spprts this perspetive, emphasizigthe eed r a “rt ad rah” rerm maremis.
II. DEfEnDInG THE InDEfEnSIbLE
That mder elassial maremi mdels ailed t rewar the emi risisthat ega i 2007 is dispted. What is i dispte is the impliatis this shld have rmaremi thery.Prmiet memers the disiplie have arged that there shld e seees.be berake (berake 2010), reet nel Prize lareate Thmas Sarget (Rlik 2010)ad the dig editr the
olivier blahard (blahard et al. 2010) have allasserted that elassial mdels helped gide pliy drig the gd times, ad shld te aaded simply ease they did t see the ad times mig. berake’s argmet isrepresetative this perspetive:
‘the reet aial risis was mre a ailre emi egieerig ad emi maagemettha what I have alled emi siee…D these ailres stadard maremi mdels mea that they are irrelevat r at leastsigiatly awed? I thik the aswer is a alied . Emi mdels are sel ly i thetext r whih they are desiged.
Most of the time, including during recessions, serious nancial instability is not an issue. The standard models were designed for these non-crisis periods, and theyhave proven quite useful in that context
. ntaly, they were part the itelletal ramewrk thathelped deliver lw iati ad maremi staility i mst idstrial tries drig thetw deades that ega i the mid-1980s.’ (berake 2010, pp. 3, 17; emphasis added)
I make no apology for describing this argument as specious, on at least two grounds.
firstly, this argmet wld ly e tleraly aeptale i elassial emis als hadwell-develped mdels that were sitale r perids risis, t it des t.
Sedly,this lasé aeptae that there a e ad times sits ddly agaist the trimphalism thatharaterized elassial disrse maremis prir t this risis. This is estexempliied y Las’s Presidetial Address t the
American Economic Association
i 2003,i whih he asserted that elassial emis had seeded i elimiatig the pssiility extremely ad times like thse we are w experieig:
‘Maremis was r as a distit eld i the 1940’s, as a part the itelletal respset the Great Depressi. The term the reerred t the dy kwledge ad expertise that wehped wld prevet the rerree that emi disaster. My thesis i this letre is thatmaremis i this rigial sese has seeded:
Its central problem of depression preventionhas been solved, for all practical purposes, and has in fact been solved for many decades.
’ (Las,Jr. 2003, p. 1 ; emphasis added)
The prpsiti that there a e separate mdels r gd ad ad times als implies thatthere is asal lik etwee gd ad ad times, whih wld e tre i they were simply
It wld als have t e prvaly tre that there is asal lik etwee gd times ad ad times – a pitI retr t elw.