I have found the latest flurry of exchanges on the AD-AS question very
interesting, and would have jumped in sooner if I only had more time.
Now that my name has been mentioned, I can no longer restrain myself --
though time constraints still limit me to one small point.
Peter Dorman referred back to an earlier exchange with me in which
I suggested that the international substitution effect constituted
the strongest case for a downward-sloping AD curve. Peter's argument
against this case is that international exchange rates will offset
differential trends in national inflation rates, so as to undercut
any effect of national price changes on national net exports. But
ia such an argument consistent with another argument made by Peter
(in the context of a discussion of Daly & Cobb's analysis of
international capital mobility), to the effect that it is precisely
the failure of international exchange rate adjustment to offset changes
in national price-and-cost conditions that is at the heart of the
transnational capital mobility phenomenon that undercuts comparative
advantage theory?
Perhaps I have misunderstood things -- but it seems to me that the same
convincing argument that Peter made to undergird the critique of
comparative advantage should actually support the downward slope
of the AD curve -- namely, international exchange rates are buffeted
by all sorts of influences that prevent them from simply offsetting
differential inflation rates. <Tom Weisskopf>
P.S.: By the way, PEN-L messages coming to me still identify PEN-L
as the "sender," as well as indicating from which PEN-L person the
message has come; so Doug Henwood' concern doesn't arise.
