Chapter

Rethinking the Basic Issues

Mario Amendola and Jean‐Luc Gaffard

in Out of Equilibrium

Published in print July 1998 | ISBN: 9780198293804
Published online November 2003 | e-ISBN: 9780191595851 | DOI: http://dx.doi.org/10.1093/0198293801.003.0009
 Rethinking the Basic Issues

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The analysis carried out in the preceding chapter makes it possible to rethink some basic issues of economic theory, such as the relation between consumption, investment, and saving, the relation between structure and cycles, the wage–employment dilemma, the problem of flexibility, and finally, the problem of economic policy. Reference to the timing and coordination issues allows, e.g. reconsidering both the productivity paradox and what might be called the wage paradox. An introduction of a new and superior technology may generate a fall in labour productivity due to coordination failures. Wage flexibility may lead to explosive oscillations of output and an increasing unemployment by inducing excessive distortions in the structure of productive capacity. Only appropriate economic policies that are a blend of rules and discretion may render growth processes viable.

Keywords: cyclical growth; distortion of productive capacity; flexibility; rules and discretion

Chapter.  10755 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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