This article represents a watershed moment.
Economist Steve Keen makes essentially the same observations in his book, “Debunking Economics,” first published in 2001. For President Obama’s former chief economist to confirm them is a big deal.
Keen and Summers agree that the classical aggregate demand curve has no predictable shape. Keen showed that as a matter of pure logic of neo-classical economics, demand can form the shape of a downward sloping curve, and upward sloping one, or an S-shaped one, downward at one point, upward at another. Theoretically, the Law of Demand cannot exist in the form in which it is usually taught.
Summers approximates Keen in his tweet, ” It is even plausible that in some cases interest rate cuts may reduce aggregate demand: because of target saving behavior, reversal rate effects on fin. intermediaries, option effects on irreversible investment, and the arithmetic effect of lower rates on gov’t deficits. “
The economic lesson for laymen to take is that demand is not a motive force in an economy. It is only an observation, a measurement of sales volume. It has none of the pneumatic qualities of water in a pipe.
Thus should economic policy makers humble themselves.