Warsh begins talking about the idea of supply side economics that was popular in the late 1970's and early 1980's but never seemed to get it right as to what was really happening in the jungle of the time.
Two view points of supply-side economics were brought into consideration, one from Mundell and the other from Laffer. The two, however, never considered each others arguments and little was done to determine who was right or wrong. Mundell wrote a book called Man and Economics while Laffer developed what is now know as the Laffer curve. Both of them soon disappeared out of mainstream economics and supply-side ideas where phased out into more modern economic theories of growth instead of supply.
I just thought this was an intersting quote from the preface of Mundell's book(Man and Economics): "Economics is the science of choice. It began with Aristotle but got mixed up with ethics in the Middle Ages. Adam Smith separated it from ethics, and Walras mathematized it. Alfred Marshall tried to narrow it, and Keynes made it fashionable. Robbins widened it, and Samuelson dynamized it, but modern science made it statistical and tried to confine it again"
A for Sue.
ReplyDeleteWarsh is displaying his prejudices in this section. he is not very admiring of Mundell and Laffer (and he doesn't even mention another important contributor, Fleming). And he's not very admiring of Wanniski, Bartley or The Wall Street Journal. He seems unaware that Mundell-Fleming is the cornerstone of what we teach in International Finance, or that it's implication that any stimulative power of fiscal policy is wasted under flexible exchange rates appears to have been confirmed over the last 30 years. As to Wanniski and Bartley, it may just be professional jealousy: they've been a lot more influential over the last 30 years than Warsh has (although Warsh writes more studious stuff). It sounds like sour grapes to me.
That's a thought provoking quote, but like a lot of Mundell's stuff, I have no idea what it all means.
N.B. Rudi Dornbusch may have been instrumental in getting his teacher, Mundell, awarded a Nobel Prize, but unfortunately Dornbusch died to young to get his own.