The economic civil war

Abstract

A little over two years ago the passing of demand-side economics was happily celebrated by many of the more conservative members of our profession, and its death knell was of course held to be the election of President Reagan. A little over two months ago the demise of supply-side economics was joyfully hailed by many of the liberals among us. It was apparently signalled by the slide in business activity which just last year yielded a new postwar high in unemt~loyment, and tempered only modestly by the recovery which seemed to be underway a bit later. Both conclusions no doubt reflected some wishful thinking. I would venture that a little less impassioned cogitation will demonstrate that both celebrations were clearly premature. Taking a leaf from Alfred Marshall's famous Principles of Economics, it would be more reasonable to contend that, like Jevons and Ricardo, our contemporary demand-siders and supply-siders are both partly right, that their basic ideas are still very much alive, and that what is needed is to fit the two sides together. Just as Marshall successfully inferred that demand and supply determine price, so may we suppose today that demand and supply determine the national income, and with it our nation's growth and wellbeing. I feel confident that John Maynard Keynes unders tood that rather obvious truth, overlooked though it has undoubtedly been by many of his followers and opponents today. At the same time, it would be misleading if we failed to acknowledge the depth of the division between some of our more vocal colleagues on the relative Left and on the