In simple terms, the statement suggests that neoclassical economists hold a view which assumes that the overall employment rate will naturally return to a certain stable level after experiencing temporary disruptions or disturbances. This implies a belief in an inherent stability of the economy and its ability to self-correct over time.
To delve deeper into the quote's meaning, it challenges the notion that economic systems are inherently stable and capable of returning to equilibrium without external intervention or structural changes. Edmund Phelps argues against this by highlighting the complexity and unpredictability of real-world economies, suggesting that shocks can have lasting impacts on employment levels rather than merely causing temporary fluctuations. This critique extends beyond just employment issues to encompass broader critiques of neoclassical economic theory regarding its assumptions about market efficiency and self-regulation.
Edmund Phelps is a renowned American economist who has made significant contributions to the field of economics, particularly in labor economics and macroeconomics. He was awarded the Nobel Memorial Prize in Economic Sciences in 2006 for his analysis of intertemporal trade-offs in economic decisions and his work on monetary policy. His critiques often challenge conventional economic theories by emphasizing the importance of understanding real-world complexities and the potential limitations of market self-regulation.
