Crime Against Humanity: Pensée Unique in Economics, 25

Despite the fact that Japan outperformed Europe and North−America for 45 years, from World War II until the 1990’s recession, supporters of the neoclassical doctrine argued that their system was an obstacle to their prosperity, and obviously enough such doctrine did not win much support in Japan. Then recession came and with it more receptiveness, and the same doctrine that could not replicate Japan’s past success could not end its present recession, either, even though its adherents managed to turn that recession into an evidence in favour of their models and their receipts of “structural reforms”; namely, “deregulation, liberalisation and privatisation”.

Let’s get a bit technical about a first group of neoclassical theoretical foundations, on which a first group of neoclassical recepits are based. These receipts relate to public spending and interest rates. Werner informs us about these foundations.
The first one is not specific to neoclassical theory, and it is that actual output is the result of resources and of their productivity. Just to be clear, how much potatoes depends on how much farmers and land, and on how deft the farmers and how fertile the land.
The second one, on the contrary, is peculiar to the neoclassical theory, it is arbitrarily assumed as true just as the other neoclassical tenets discussed above, and it holds that the actual output equals the potential output. Just to be clear, all potatoes than those farmers and land can grow will be grown, always and however.
The third one derives from the combination of the first two, and it is that, for the neoclassical theory to explain reality and thus hold true, for any change in output there must be corresponding changes in – and only in – resources and/or in their productivity.
Well, Werner’s findings about the Japanese case are that all of them are false: first, there were no changes in resources and productivity such as to account for recession; second, the actual output during recession did not equal potential output; and thus third, the neoclassical theory failed to explain reality.
So much for the neoclassical foundations of the public spending and interest rates receipts. They had to be rooted in a different province than truth, evidently, because the receipts derived from them made their way into the corridors of power in spite of truth. In fact…