I rather like thinking of aggregate demand as one of those nebulous but useful concepts – an AS/AD model just wouldn’t be the same with some sort of strict, consensus definition. Actually, I shy away from consensus definitions as the thought smacks of the more political side of life and has a tendency to squelch creativity. Some things born of consensus are appropriate for the time and space for which they are agreed, but get carried too far. Take the need to “control” the nebulous concept of inflation, for example, that morphed into an obsession with controlling even explainable, natural price movements with inappropriate tools. What was once a useful concept turned into the bane of mankind in the span of only a couple of decades. In short, some things are better left more fluid – like inflation – than ground into a rigid mold that can be modeled so that the VSPs can catch a drift. The VSPs are probably better off building rockets, leaving economics for the more creative minds.
When I noticed Scott Sumner questioning the meaning of aggregate demand, I was blind-sided in a way. It’s an admirable quality to question the foundation of what one believes, and at times, I’ve found doing so to be quite liberating. It demonstrates character because once one starts to question long held beliefs, one should be prepared to deal with the answers, palatable or not. Because I am quite inquisitive, I am often reminded that sometimes ignorance is bliss (but of course I wouldn’t know that unless I tried to find out!).
But then, it reminded me of a boss I once had. Everyone thought she was the smartest person in the room – and many of her followers followed without question. Things went along fine until she had a stroke of what could be called bad luck. She was very wrong about nearly everything and did not enjoy being challenged. And she denied having been involved the choices though much of the team’s work product had her fingerprints all over it. She left her subordinates holding the bag – and in the end, everyone in the group was laid off but she and a teammate who was good at busy work and not much else.
Regardless of the results of the soul searching, I think I will probably stick with nebulous. Though, I certainly hope that Sumner is the leader he seems to be and teaches not the meaning of aggregate demand, but leads by the example of willingness to question everything. Perhaps then, Market Monetarism will catch on and spread like wild fire.