The Venezuelan economy is in a mess. Everyone knows it; no one denies it. There has been a catastrophic fall in real incomes and wealth. Why?
Is it because everyone has decided to save rather than spend? Is it because there has been a fall in aggregate demand? Is there not enough public spending?
Here’s the real question. Is there anything in modern mainstream macro that will explain what has gone wrong in the Venezuelan economy? If so, how does modern theory explain what has happened?
In my view there is hardly a thing in the way we teach economics that will explain the problems of the Venezuelan economy. Nor would a modern text tell you what to do or to change if the problems are to be fixed.
I do think economists do understand why it has gone so badly wrong. I just don’t think we teach any of it any more. We certainly don’t spell it out.
AND I’VE JUST COME ACROSS THIS: I’ve been reading through John McVickar’s illuminating 1825 Outlines of Political Economy, and a wonderful book it is too. And there I found this sentence.
The capitals of England and of France have not increased, because of the vast expenditure of their governments, but in despite of it. [p 33]
The language is a bit archaic but then so too is the economics. Perfectly clear, however, both the syntax and the conclusion.