in the hope that the path could be made definite and path-dependent supply reconciled with the Market Clearing Proposition. The New Classical Economists aren't out of the dialog. I said that the Market-Clearing Proposition leads to the conclusion that the NAIRGDP is path-independent. It "leads to" path-independence not by an air-tight logical connection, but by what seems to be a natural interpretation. But there could be another interpretation that would reconcile the apparent path-dependence of Aggregate Supply with the Market-Clearing Proposition.
Of course, there have been proposals of alternative interpretations that might solve this problem, and work is ongoing. While most New Classical economists probably wouldn't express the problem just as I do, it is recognized that the New Classical approach doesn't give a unique answer to the question "how much can be produced without inflation," i.e. the NAIRGDP or the "rational expectations equilibrium." A popular approach in the mid-nineties was to think in terms of "rational learning" in the hope that the path could be made definite and path-dependent supply reconciled with the Market Clearing Proposition.
But there doesn't seem to be any widely accepted solution to the problem, as yet.
And, actually, the New Keynesians aren't in much better shape. The unemployment equilibrium theory, either in its simplest and earliest form or in the latest, complex form, leaves some important questions unanswered. Even if we grant that labor markets do not clear -- that the supply of labor and the demand for labor aren't generally equal -- we wonder why. When markets don't clear, people are failing to make deals that would be mutually profitable. In a world of rational, self-interested people, why would people fail to make a mutually profitable deal? Why would markets fail to clear?
Here, again, proposals have been made to answer the question, over the years. Sometimes the answer "they just don't, that's all," has been pretty popular, but it was never very satisfactory, and there still seems to be no commonly accepted answer to the question among the Keynesians, new or old.
Thus, both parties in this long discussion are in somewhat tattered shape. Each approach faces objections that undercut its credibility, and while the objections are not fatal, there are few signs of progress in answering them. In my opinion, the charges against the New Classicals are more damaging, and that's why I consider myself (more of) a Keynesian, but other very good economists may disagree with my opinion on this, and some do.
It's not that we haven't made any progress. We have a considerably better "map" to navigate the macroeconomy than we had before, whichever way you want to interpret it. But the dialog goes on, and there are difficult issues to deal with. In order to deal with them, it seems that we need a better understanding of unemployment, and that is the topic of the next (and last) chapter.
Chapter Summary
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