Barkley Rosser wrote: You say that stagflation was caused by a "complex of forces that made the US economy less competitive in the global economy." Excuse me, but stagflation in the mid-1970s was a global phenomenon that hit pretty much all market capitalist, oil-importing economies, not just the US. Looking at it as a shock to the AS curve for any of those economies remains a mighty powerful way of explaining what happened, even if one thinks that the sustained inflations that followed were due to overly expansionary monetary policy or something else. There is a very good reason why it was the 1970s oil price shocks that led Baumol and Blinder and other textbook writers to introduce the AS/AD analysis, for better or for worse. Barkley, your defense of AD-AS as a teaching tool is very perplexing to me. I am reluctant to "excuse" your criticism of my argument that the U.S. "stagflation" problems were due to the complex forces that made the U.S. economy less competitive. I disagree that stagflation DUE TO AN OIL PRICE INCREASE "was a global phenomenon," although I agree that many nations had high inflation, high unemployment and slow growth during the mid to late 1970s. In any case, since I was concerned with the U.S. economy, I fail to see the relevance. Are you claiming that because other countries, particularly England and European countries, had macro characteristics similar to those of the U.S. during the period that my hypothesis is wrong? Two articles may be useful here. The first, which I have cited numerous times is Mundell's. Mundell writes that England and Europe responded to the rise in oil prices by raising their money supplies, just as the U.S. appeared to do. So it is no surprise that there was inflation. It is apparently also true that the special conditions in international exchange markets led to some "export" of inflation from the U.S.. But that is not part of your AD-AS story, is it? The second article is by Tom Willett: ANNALS, AAPSS, 460, March 1982 The United States and World Stagflation: The Export and Import of Inflationary Pressures By THOMAS D. WILLETT The article is in JSTOR and Sage publications. You can probably access it for free. Moreover, the whole discussion is beside the point. As you will recall, my claim is that AD-AS biases the exploration of "macroeconomic problems." It directs one's attention away from causes and towards government spending as a solution. What is your response to that? If one's aim is to present a theory of the effects of a sudden increase in the price of foreign oil on the U.S., one should analyze exchange rates and how international oil prices are determined. One should include an analysis of speculative markets in commodities and about the U.S. share of the oil market. Of special importance, in my view, is how a sudden change in any price disrupts the coordination that would have otherwise occurred. Of course, it is much easier to draw a scissors diagram on the white board and show students how simple it is to explain how an oil price hike can cause inflation and low "real output" (and, by implication, how smart macroeconomists are and why a more detailed analysis that incorporates markets, prices and entrepreneurship is unnecessary). The mere fact that it is possible to use the AD-AS framework to tell a story is not evidence that it SHOULD be used, is it? Pat Gunning