A Macroeconomics Reader

By Brian Snowdon; Howard R. Vane | Go to book overview

19

The reincarnation of Keynesian economics

N. Gregory Mankiw

European Economic Review (1992) 36, April, pp. 559-65

The title of this session, ‘Keynesian Economics Today’, says much about what has happened in macroeconomics since the early 1980s. When I began graduate school at MIT in 1980, it was not at all clear that Keynesian economics would still be around in the 1990s. Keynes looked as if he were leaving macroeconomics and entering the history of thought. The leading intellectual figure of the day was Robert Lucas, and he had this to say about the state of Keynesian economics:

One cannot find good, under-forty economists who identify themselves or their work as ‘Keynesian’. Indeed, people even take offense if referred to as ‘Keynesians’. At research seminars, people don’t take Keynesian theorizing seriously anymore; the audience starts to whisper and giggle to one another.

Lucas called his article ‘The Death of Keynesian Economies’.

From our current perspective, it is clear that this obituary was premature. Today, Keynesian theorizing does not inspire whispers and giggles from the audience. There are many economists under the age of forty who do not take offense when their work is called ‘Keynesian’, and I count myself as one of them. If Keynesian economics was dead in 1980, then today it has been reincarnated.

David Romer and I have assembled some of the articles that have been central to this reincarnation in a two-volume collection called New Keynesian Economics (Mankiw and Romer 1991a, 1991b). The topics covered in this collection—such as imperfect competition, menu costs, coordination failure, and efficiency wages—are those that have dominated discussions among Keynesians since the early 1980s. It is too early to say there is a consensus about how all these topics fit together. Yet one can say that the new classical challenge has been met: Keynesian economics has been reincarnated into a body with firm microeconomic muscle.

I am careful to call this re-emergence of Keynesian economics a ‘reincarnation’ rather than a ‘resurrection’. My dictionary defines ‘reincarnation’ as ‘the rebirth into another body’, and that describes well Keynesian economics today. The Keynesian economics of the 1990s shares the spirit

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