Keynesian Supply Shocks and Hayekian Secondary Deflations

Abstract

In response to the COVID-19 lockdown policies, Guerrieri et al. (2020) developed a new concept: the Keynesian supply shock. A Keynesian supply shock is an aggregate supply shock that leads to an even larger aggregate demand shock. This paper suggests that Keynesian supply shocks are very similar to the secondary deflations suggested by Hayek (1931), and US data from the 2007–09 financial crisis show that these concepts may help to explain employment dynamics in the midst of a crisis. This fact implies that long-standing policy advice based on Austrian business cycle theory would be useful in responding to Keynesian supply shocks.

Public spending and economic growth: Evidence from the Western Balkans

“…The rise in public spending was a result of the corporate community's increased understanding of the need to be fiscalized. The redistribution of income affects the economic and social position of the population according to their activities, economic power, and social position (Engelhardt, 2021). Economic needs through public revenue factors indirectly determine the implementation of financial policy instruments.…”

Revisiting the Computation Problem

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In 2013, Engelhardt (2013 calculated that the combined power of the top five hundred supercomputers would take approximately 10.5 quintillion years to compute the distribution of eighty thousand heterogeneous goods among six billion consumers, posing a serious practical challenge to the implementation of computerized central planning. Allin Cottrell (2021) calls into question Engelhardt's assertion, noting that the algorithm used by Engelhardt not only scales poorly but is not even valid for the problem Engelhardt posed.

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“…In his 2013 study, Engelhardt (2013) looks at technosocialism from a new perspective: is it possible for an advanced computer system to solve, in a reasonable amount of time, all the equations necessary to centrally plan an economy? He estimates the time it would take for the TOP500 supercomputers 2 to solve the system of equations required to maximize social utility for the world population, assuming heterogeneous preferences for eighty thousand heterogeneous goods.…”