A Keynesian Approach
New Directions in Modern Economics series
Chapter 7: Policy Conclusions
7.1 INTRODUCTION This book developed a Keynesian explanation of the rise of European unemployment from the 1960s to the 1990s. The work is motivated by the dissatisfaction with the mainstream NAIRU explanation of European unemployment. Chapter 2 proposed a theoretical model that incorporates a negative eﬀect of unemployment on the wage share (reserve army eﬀect) into a ﬂexible Post-Keynesian growth model. Chapter 4 tested the employment function that this model implied and contrasted it with the NAIRU story of European unemployment. In the Keynesian explanation, the slowdown of accumulation is the major cause of the rise of European unemployment. Therefore the reasons for the slowdown of accumulation are of interest. Chapter 5 argued that ﬁnancialization, that is the changing relation between the ﬁnancial and the industrial sector, may have played an important role. The shareholder revolution aligned management’s interests with those of shareholders, causing a shift of management priorities from growth to proﬁts. Finally, the argument that ﬁnancialization has a negative eﬀect on investment was tested econometrically in Chapter 6. In the remainder of this conclusion we will summarize the key ﬁndings of each chapter, and then draw some policy conclusions. 7.2 A SUMMARY Traditionally Keynesians, arguably Keynes himself, but certainly Kaldor and Robinson, regarded income distribution as an outcome of variables on the goods market, such as investment decisions and savings propensities. The model presented in Chapter 2 diﬀers from other Post-Keynesian growth models in that a reserve army eﬀect, that is a...
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