Setbacks of supply-side economics in the face of fundamental uncertainty - The case for unleashing aggregate demand

Angel Asensio ()
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Angel Asensio: UP13 - Université Paris 13, Université Sorbonne Paris Nord, CEPN - Centre d'Economie de l'Université Paris Nord - Université Sorbonne Paris Nord

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Abstract: Although the orthodox approach and the General Theory both consider the functioning of a market economy in which rational individuals operate, they arrive at radically opposite properties in competitive equilibrium. One of the most striking differences is the predominance of aggregate supply conditions in the former and aggregate demand conditions in the latter, but the reasons why the two approaches obtain such different results when studying a seemingly similar system remain unexplored as such, which resulted in a misrepresentation of the supply side in the analysis of demand-driven systems in both orthodox and post-Keynesian literature. First, the article shows, both theoretically and using very familiar formal tools, that it is the radically different ways in which they approach uncertainty and risky decision making that lead in one case to the neutrality of money inherent in the 'supply-side economics' and in the other to the non-neutrality of money from which the 'demand-side economics' proceeds. It then shows why supply conditions affect equilibrium output in the General Theory only through aggregate demand, and why supply-side policies, although appropriate in a supply-driven system, are particularly harmful in a demand-driven system. In doing so, it reveals the full benefit that simply abandoning these policies could produce.

Keywords: Fundamental uncertainty; Competitive equilibrium; Aggregate demand; Supply-side policies; Unemployment (search for similar items in EconPapers)
Date: 2026-07-01
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