We thank Parag Waknis for his comment. If nothing else, it succeeds – albeit unintentionally – in providing a fi ne illustration of the problems with contemporary economics that our article described. In our article, we suggested that the methodology that has dominated econo
mics for the last generation leaves economists unequipped to make arguments for active macroeconomic policy.
Since agents know the true parameters of the distribution of future outcomes and inter-temporally optimise at all
points based on that, the link between current income and current expenditure, and the consequent centrality of
aggregate demand are broken. The result of this approach is that recessions and periods of high unemployment are
simply assumed to be the result of optimising choices on the part of agents. Waknis does not challenge the accuracy of this description of current economic practice; he just does not see anything wrong with it
