Morning Must-Read: Adam Tooze: The GDP of Empires
Liveblogging World War II: June 30, 1944: The Aldwych V-1 Blast

Afternoon Must-Read: Paul Krugman: Stagflation and Macroeconomics

Paul Krugman: Stagflation and Macroeconomics: "Simon [Wren-Lewis]... dismisses the stagflation of the 1970s...

...on the grounds that IS-LM macroeconomics quickly adapted to the new information.... (Compare this with new classical macro, which failed decisively in the 1980s, but never adjusted at all.) Nonetheless... stagflation did indeed play a role.... Stagflation had in effect been predicted by Friedman and Phelps... by taking a step in the direction of microfoundations.... What this did was to give immense prestige to the notion that you could use the assumption of rationality to make better predictions than you could using historical experience alone.... In the 80s, as I said, this was proved wrong, and the whole enterprise should have been reconsidered. But by then you already had a self-perpetuating clique that cared very little about evidence.... New classicals shrugged off the 80s, just as they are shrugging off the Great Recession...

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