Last week I pointed to the most important paragraph ever written in macroeconomics. Today's article starts with the most important paragraph in microeconomics. It is from Prices and Quantities, probably the best piece that Arthur Okun ever wrote. He is, after all, one of the most under-appreciated economists of the 20th century.
Okun’s inspiration for the book was the stagflation era of the 1970s. However, the timeless message in his book has to do with prices, reasons for sticky prices and the relation between price stickiness and money, or liquidity. As a background to his analysis, it is important to remember that mainstream textbooks in microeconomics are filled to the brim with the Walrasian narrative, according to which: