Post Keynesian economics

Read Brad’s whole post.  My broadly similar take sees the post Keynesians as having promoted several important ideas:

1. Price and/or wage stability can be destabilizing; Keynes (sometimes) presented stickiness as a policy recommendation rather than a necessary fact.

2. Financial fragility, a’la Hyman Minsky.

3. Noise traders matter for macroeconomics.

4. Moving Keynesian economics away from the consumption function and IS-LM.

5. Behavioral and psychological imperfections are relevant for macroeconomics.

6. They resurrected interest in the idea of an endogenous money supply.

I’m not entirely on board but overall that is a strong list.  These ideas have now been incorporated into the mainstream, but only recently, typically in the 1990s and sometimes by Brad himself. 

The post Keynesians went wrong, however, in several ways:

1. Too many of them obsessed over incomes policies.  On "public choice" more generally they were naive.

2. Too many viewed Thatcherism, the war against inflation, and other developments as instruments of class warfare, designed to redistribute income from poor to rich.

3. They held too many debates over "what Keynes really meant" and cared too much about distinguishing themselves from mainstream Keynesians, whom they often treated as their worst enemy.

4. They ascribed too much power to the liquidity premium on money, and thought it was easy for an economy to end up in a corner where no one wants to produce new investment assets.

5. They failed to model the complexities of system-wide wage and price stickiness, and the differences between real and nominal stickiness, a’la Romer (ReStud 1990) or Caplin and Spulber.  For this reason at some point they stopped coming up with insights on stickiness and fell far behind the rest of the profession.

6. They failed to develop an empirically progressive research program that kept pace with mainstream macro.

7. They failed to realize that the future of Keynesian economics lies in the elements of Milton Friedman — nominal stickiness is real and the action is with monetary policy — that were most Keynesian.

Overall post Keynesianism has been a far more useful heterodox thread than Sraffa and neo-Ricardianism.

Comments

Prof.Cowen,
We study Post-Keynesian economics in our macroeconomics paper where there is a section on disequilibrium Keynesians, new-Keynesians,Orthodox Keynesians etc.There are some other important aspects of PK school like:
1.Their peculiar methodology based on historical time analysis("today is an ever-moving break from a known past and an unknown future"-Prof.J.Robinson's article titled "History vs Equilibrium" is the main reference source),rather than the logical time concept in mainstream theory,
2.PK's extention of static Keynesian model in to the long run dynamics of distribution and growth,
3.Their view that Keynesian theory is a contribution in the field of uncertainty and expectations and the argument about the need to have a reflexive theory of expectations based on the historical proceses behind the formation of expectations,
4.Prof.Kaldor's numerous view points on growth,
5.The Kaleckian theories of capitalist dynamics, etc., and above all,
6.Their microfoundations based on dualistic prices (competitive prices in agricultural and primary product markets and oligopolistic "take it or leave it" supplier-determined prices in the manufacturing sector),their mark-up pricing rule,Prof.Weintraub's and others effective demand theories and a lot more.

The PK world is a fascinating one and our syllabus setters thoughtfully included all these PK details in our macroeconomics syllabus along with mainstream models.

1. Incomes policies do not work in big diverse economies like the US.
But they have done very well in Europe. The countries with long-running
collective collective bargaining, like the actually existing Austria,
have had admirable macro records with low inflation and low unemployment
over long periods of time.

2. Regarding empirics, the PKs have regularly pointed out certain anomalies
that more orthodox economists simply ignore because they go against their
theories. Thus, Smolensky et al showed some time ago in a JPKE article
that peoples' savings rates tend to rise in old age, not decline.

3. The original models of nonlinear dynamics in economics largely came out
of the macro models of some of the early PK economists, such as Michal Kalecki,
Nicholas Kaldor, Richard Goodwin, and with John Hicks also playing the game,
who wore many hats. I have written extensively on this topic.

4. It also should be kept in mind that originally the Sraffians were considered
a branch of the Post Keynesians, indeed may have been the original Post Keynesians
(Joan Robinson invented the term, according to Geoff Harcourt). There was a huge
split in the 1980s, especially between Paul Davidson and Pierangelo Garegnani, with
Sraffian neo-Ricardians apparently getting expelled, more or less.

5. Many regret this. In a speech two days ago after he was especially honored at
a conference I attended in Italy, one of the great Sraffians, Luigi Pasinetti declared
that there should be an "hyper-integrazione di Sraffa con Keynes," (hyper-integration
of Sraffa and Keynes), which arguably Pasinetti himself pulled off, doing Sraffaesque
input-output analysis as the microfoundation of the supply side with demand coming
from a Keynesian approach.

Indeed. Simply because mainstream economics ignored Post-Keynesian doesn't mean it is by definition wrong or incomplete. In fact the direction it did take - toward multi-period dynamic optimization models - makes up for the complexity of it's optimization by many times silly assumptions about representative consumers, firms and simplistic budget constraints, technology and what not.

I agree with you. Post Keynesian pay attention to IS-LM model and what Keynes really mean instead of looking over the real world and supply and demand analysis. For example, long term contract and wage rigidity are minor in the current economic regime. Why does post Keynesian keep it as corner stone of post Keynesian economics. Business cycle may occur under flexible price (wage) and quantity. That markets are in general disequilibria under flexible price and quantity is new approach to understand business cycle.

IS-LM model implies that investment and saving may be not equal so that income fluctuate. But Keynes defines income to be Y=C+S and Y=C+I (saving always equals to investment). Keynes is wrong. But post Keynesian has never tried to revise it.

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