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Thread: I agree with some of this @IvanWerning @dandolfa @RebelEconProf @ojblanchard1 @DavidBeckworth @TheStalwart @MESandbu @warwicknewsroom @RebuildMacro @BaldwinRE Particularly the part about breaking apart the theory of the Phillips Curve from the statistical ... 1/9
correlation. But underlying it all there is a deep and fundamental disagreement over the legacy of the General Theory. It began with Samuelson who pushed an interpretation of Keynes’ General Theory in the third edition of his textbook public.econ.duke.edu/~kdh9/Source%2… According ... 2/9
... to Samuelson’s neo-classical synthesis, the economy is ‘Keynesian’ in the short-run and ‘classical’ in the long-run. The short-run was defined as the period over which markets are not in Walrasian general equilibrium. Samuelson seized on the work of ... 3/9
... Auburn Phillips onlinelibrary.wiley.com/doi/pdf/10.111… to connect the short-run with the long-run. The MIT machine took over rogerfarmer.com/rogerfarmerblo… and the rest is history. My work provides a fundamentally different reconciliation of Keynes’ General Theory with general equilibrium ... 4/9
... theory. I claim that Keynesian economics has nothing to do with sticky prices in the sense in which that label is interpreted by the MIT machine. Markets fail to efficiently allocate resources because the labor market is not well described as an auction. It is a search... 5/9
... market in which there are not enough prices to allow participants to decide if a given number of vacant jobs should be filled by many workers searching for a few vacancies, or a few workers searching for many vacancies. There is a profound indeterminacy in search ... 6/9
... models that makes them ideal vehicles for explaining the central thesis of the General Theory. That thesis is that any unemployment rate can be an equilibrium. Which equilibrium prevails is selected by the animal spirits of asset market participants. This insight has ... 7/9
... nothing to do with inflation. As I showed in my paper on Aggregate Demand and Supply, static1.squarespace.com/static/573b5f2… it occurs in purely real models. My reinterpretation of the General Theory is not a simple relabeling of old ideas. It leads to fundamentally different ... 8/9
... conclusions for the way we should conduct economic policy. The most important of these is that the financial markets are inefficient and that by stabilizing equity prices, central banks can substantially reduce the welfare costs of business cycles. 9/9
