June 2019

Modern macroeconomists “solve” the problem [of market imbalance] by assuming it away: the standard models assume that somehow the economy is in equilibrium, with demand for labour and goods somehow just equalling supply. That we achieve this beautiful equilibrium is, like the belief in market efficiency itself, a matter of deep religious conviction, and the path we take to get there a matter of mystical revelation. If a problem crops up in this all-encompassing theory – if there is unemployment, for example – the response is simple: blame the victim, meaning workers, for demanding too-high wages, or migrants, for flooding the job market. If only wages were sufficiently flexible, the theory goes, or borders sufficiently forbidding, the economy would always be at full employment.