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John Maynard #Keynes was born on June 5, 1883, and died too early. Here's a few thoughts on why I keep circling back to him, & why his work forces 2 rethink the way we do & teach #economics, esp. #micro. I am sure this (partial) thread will upset someone: apologies in advance. 1/
#Keynes understood that #macroeconomics is about emergent properties: aggregate outcomes that don't make sense 2 the individuals populating the economy. The logic, e.g., of the #IncomeExpenditure model is that an economy can coordinate along any point on the 45-degree line.. 2/
and that, accordingly, we should expect economies to operate with slack. Then you have the #ParadoxofThrift and all that. He also talked about the #ParadoxofCosts when he discusses redistribution to lower income people who have higher propensity to consume... 3/
as well as the #WidowsCruse metaphor, according to which the willingness to invest more by more optimistic firms (or a government wanting to run an expansionary policy) will find the funds needed to finance such investment. 4/
Initially, the Keynesian paradoxes were studied as #disequilibrium phenomena: I think this is not helpful. My view is that Keynes makes us think about why #equilibrium outcomes in decentralized economies may be not socially desirable. 5/
One way 2 think both about #NeoclassicalSynthesis & #NewClassical #Economics that followed was 2 minimize the importance of such paradoxes: partial (or full) crowding out in #ISLM & anticipation of policy shocks in the (logically important!) #LucasCritique are just 2 examples 6/
(Here is where it will start to upset folks) My view is influenced by this paper by Bruce Greenwald & @JosephEStiglitz: nber.org/papers/w2160, where they beautifully argue that #NewClassical Economics missed the mark on aggregation, by assuming it away. 7/
That paper is about the integration of #micro & #macro, & why imperfect information models deliver Keynesian results, more than Neoclassical Synthesis models. Not everybody acknowledges this, but there is a lot of #micro in the #GeneralTheory, and that is very important. 8/
And so my way of viewing Keynes' underlying #microeconomics is that it is about #coordination #failures. I always recommend this wonderful QJE paper by Cooper & John, which outlines the argument in a simple, static model: jstor.org/stable/1885539…. 9/
The way we teach #economics is to present a flawless world first without paradoxes (= Walrasian General Equilibrium) & then show one-by-one what are instances of the flaws that give rise to issues (#Externalities, #PublicGoods, #AsymmetricInfo, #Search)... 10/
...whereas we should completely flip the script, starting with the more general, cases first and then present Walrasian GE 4 what it is: Utopian Capitalism as per its wonderful summary by Sam Bowles in Ch. 6 of his #Micro book: 11/ amazon.com/Microeconomics…
Just as Keynes' GT was misinterpreted (straightjacketed) as a special case, the typical way of organizing the #economics curriculum downplays the role of information, strategic behavior, externalities & so on as "imperfections." These are, and should be considered, the norm. 12/
As a final set of thoughts, I personally think this way of looking at Keynes' #micro provides a useful bridge between #classical - #PostKeynesian econ & the kind of #NewKeynesian economics above. I think the "truth" is somewhere at the intersection between the three... 13/
...although I fully acknowledge that not a lot of people share this view, and some may be (perhaps rightfully) opposed to it, especially in the #heterodox community. /end
