Eugene Fama should know better

Brad DeLong blasts Eugene Fama for his manifest failure to understand the investment-savings identity:

Fama… thinks that “investment” means “growth in the value of the capital stock.” He simply does not understand what the NIPA investment concept is, or that what he thinks of as “investment” is not in general equal to savings…

All of this is part of the undergraduate sophomore economics curriculum. It is gone over again very quickly in graduate school…

These mistakes are, literally, elementary ones.

They were elementary when R.G. Hawtrey and the other staffers of the British Treasury made them in the 1920s.

They carry the implication not just that government cannot stimulate or depress the economy, but that no set of private investment or savings decisions can stimulate or depress the economy either, and thus that there can be no business cycle fluctuations from any source whatsoever–because every action that shifts savings or investment simply moves resources from one use to another.

Eugene Fama really should know better…

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