Prices and Quantities: A Macroeconomic Analysis

by Arthur M. Okun

During the past decade Arthur M. Okun, like many economists, focused attention on finding ways to fight inflation without sacrificing goals of high employment and prosperity. In recent years the economy has been plagued by stagflation—the simultaneous persistence of high inflation and high unemployment. Traditional methods of aggregate demand management that have been reasonably successful in curing either one or the other of these problems have not been effective, and the nation has not been able to contain inflation even in periods of economic slack. It now seems clear that the economists’ traditional model that presumes short-run flexibility in wages and prices no longer holds for most of the industrial world, and hence the response of inflation to shifts in macroeconomic policy is weak. In this volume Okun seeks to explain that loss of responsiveness by analyzing how modern labor and product markets work and how they are structured. A central feature of Okun’s analysis is implicit contract theory, which recognizes that efficiency-maximizing decisions by business firms reflect long-term considerations as well as short-term changes in markets. His interpretation of microeconomic behavior and macroeconomic performance provides a basis for the design of policies to deal with stagflation.

Genres: Economics

367 pages, Hardcover

First published January 1, 1981

Reviews

[Cameron Wilson · Rating 2 out of 5]

-Okun takes walrasian equilibrium thought and makes many realistic amendments. The focus is on the prevalence of quantity adjustments as opposed to price adjustment. Then how quantity, information, and relationships are key in labor, customer, and asset markets
-mostly armchair theorizing, but a much more realistic and plausible microeconomic analysis than some, especially for one that still retains marginalism
-some of mathemetizing incredibly simple and incredibly hypothetical concepts when reference to empirical evidence could substitute as the basis of the model
-still not sure why someone would create a mathematized formal theoretical economic model. That is instead of gathering historical and quantitative arguments and making verbal remarks about the interrelationships between the variables. A simple model like those in the book just boomerang back out the facts and assumptions used to create them. Leave equations and graphs to actual collected data, and then include every relevant fact no matter how much messy it makes the model. In real science, ideas that can be summarized into curves (like gas phase transition) are based on empirical data sets, and even then units and consistent increments are retained on the resulting graph
-good look at a more realistic attempt at theory, although it is a relic of the 70s with regard the laws of labor and asset markets and the focus on inflation