The Scope of this Idea

The idea behind the Policy Ineffectiveness Proposition applies to the full range of macroeconomic policies, as we have seen. Its scope of application could be much wider still. We could express the idea in a very abstract (and therefore general) way:

Any consistent government policy, or any government policy with consistent goals, will be learned by the people it is supposed to influence. Having learned the policies, it is likely that the people will change their behavior, responding to opportunities to increase their profits and standards of living that result from the policies. Unless the policy is designed with this principle in mind, it is quite possible that the changes will frustrate the objectives of the policy.

We can think of this in terms of game theory. We like to think of the government as being outside the game, defining the rules of the game. But the government is one of the players in the game -- a big player with a special role and powers, true, but one among many. If the government changes its strategy, the other players will change their strategies to suit. If government policies are to be effective, they have to take this into account.

The New Classical theory of macroeconomic policy does take it into account. But is the New Classical Theory true?

Permanence