Should markets clear?

[Note:  This item comes from friend David Rosenthal.  David’s comment: ‘Steve Waldman asks an interesting question.’  DLH]

From: “David S. H. Rosenthal” <dshr@abitare.org>
Subject: Should markets clear?
Date: May 17, 2014 at 18:43:42 EDT
To: dewayne@warpspeed.com

Should markets clear?
By Steve Waldman
May 14 2014
<http://www.interfluidity.com/v2/5117.html>

David Glasner has a great line:

[A]s much as macroeconomics may require microfoundations, microeconomics requires macrofoundations, perhaps even more so.

Macroeconomics is where all the booming controversies lie. Some economists like to argue that the field has an undeservedly bad reputation because the part that “just works”, microeconomics, has such a low profile. That view is mistaken. Microeconomic analysis, whenever it escapes the elegance of theorem and proof and is applied to the actual world, always makes assumptions about the macroeconomy. One very common assumption microeconomists frequently forget that they are making is an assumption of rough distributional equality. Once that goes away, even such basic conclusions like “markets should clear” go away as well.

[snip]

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