Wednesday, March 25, 2015

Jonathan Schlefer — Not even Paul Krugman is a real Keynesian

Wicksell argued that if interest rates rise above some “natural rate,” they weaken investment demand and growth, while if they fall below it, they spur excessive demand and inflation. But markets inherently correct imbalances, restoring optimal equilibrium. 
Keynes disagreed. “The economic system . . . seems capable of remaining in a chronic condition of subnormal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse,” he wrote. “The evidence indicates that full, or even approximately full, employment is of rare and short-lived occurrence.”....
But isn’t Keynes now mainstream? No, say Foley and Taylor. The mainstream still sees economies as inherently moving to an optimal equilibrium, as Wicksell did. It still says demand causes short-run fluctuations, but only supply factors, such as the capital stock and technology, can affect long-run growth. ....
The Boston Globe
Not even Paul Krugman is a real Keynesian
Jonathan Schlefer, researcher at the Harvard Business School
ht Matias Vernengo at Naked Keynesianism


NeilW said...

Similarly Aggregate demand is not the same as Effective Demand.

And a Liquidity Trap is when *nobody* wants bonds at any price, so unless you have evidence of failing bond auctions across the globe then we are *not* in a liquidity trap as Keynes defined it.

Jonathan Larson said...

I learned economics at what was then one of the bastions of Keynesianism. The head of the department was Walter Heller—JFK's CEA Chairman—and he had his students read Samuelson. This was the department where the legendary Alvin Hansen (often called America's Keynes) once taught.

In that setting, Krugman would have barely been considered a Keynesian at all and my crowd would not have sat with him at the cafeteria. Of course, Heller was one of those right-wing Keynesians so maybe Krugman would not have been stoned to death.