Economic Crises and Their Relationship to Global Supply and Global Demand

Abstract

Does it make sense to analyse crises in terms of global supply and demand? Can they be explained consistently with the necessary equality between supply and demand required by modern macroeconomic analysis? These are the crucial questions we will address in this chapter. Starting from Say’s law and Keynes’s logical identity between Y and C + I, we will first investigate the problem of whether or not the insurgence of an economic crisis entails their rejection. Indeed, the possibility of reconciling a situation of disequilibrium with the identity of global supply and demand seems very remote if not altogether inexistent. On the other hand, however, quantum macroeconomics provides clear logical evidence that the identity between global supply and demand is at the heart of economics. This can only mean that, eventually, economic crises will have to be explained without denying this identity. This is not what the followers of mainstream economics claim. Both neoclassical economists (whether advocates of the New Classical or of the real business cycle approach) and Keynesian economists (whether members of the New Keynesian or the post-Keynesian school) believe in some kind of general equilibrium framework and ascribe the outbreak of economic crises to factors affecting either the supply side or the demand side of their models.