New Keynesian Economics/Post Keynesian Alternatives

By Roy J. Rotheim | Go to book overview

Part I

PRICES, OUTPUTS AND MARKETS

The first part of this book contains chapters which consider the broader theoretical issues underlying New Keynesian economics. As was pointed out in the Introduction, there are so many ways that economists have used the name Keynesian, that it is hard to know which writer is falling into which frame of reference. For example, New Keynesians admonish New Classical economists for their assumption of instantaneous market adjustment, despite the fact that they share a heuristical framework of thinking in terms of markets and factors underlying market phenomena. Still, on which side of the market clearing fence they fall determines their particular acceptance of government intervention as a device for smoothing business cycles, confirming their self-assigned terminological distinction between New Keynesian and New Classical economics.

New Keynesians and Post Keynesians share the Keynesian mantle, along with, alas, Neo-Keynesians, as well. Neo-Keynesians share the importance of policy activism with New Keynesians, and play down (although do not abandon) market metaphors when thinking in terms of aggregate structures. However, both of these latter types of Keynesians embrace notions of a future outlined by probability distributions (risk) which force their thinking about economic phenomena into conjunctions of events yielding relatively determinate solutions (see Lawson, 1994).

The next four chapters consider these myriad incarnations of the phrase Keynesian from a Post Keynesian perspective. Together, they attempt to set the tone by which the remainder of the chapters in this book may be appreciated. The common foci of these chapters are the extents to which thinking in terms of markets to understand employment and output as a whole are methodologically and theoretically tenable. The reader is asked to think, as he or she works through this first part, about Keynes’s critical point in the Preface to the General Theory, that theories based on market metaphors can explain shifts in employment and output between and among firms and industries in an economy, but that such frameworks are not capable of analysing situations in which employment and output change for industry as a whole.

Appropriately, the story gets off the ground with a contribution by Paul Davidson. In his ‘Setting the Record Straight’, Davidson takes on both the Neo-Keynesians and the New Keynesians as he attempts to clarify what he believes to

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