Growth and Economic Development

Growth and Economic Development

Essays in Honour of A.P. Thirlwall

Edited by Philip Arestis, John S.L. McCombie and Roger Vickerman

This valuable and engaging new book bears eloquent testimony to A.P. Thirlwall’s substantial contribution to economics over the last 40 years. The volume does not attempt to provide a comprehensive review of such a prolific figure, but rather demonstrates the considerable influence that his work on economic theory has had on his contemporaries, and the profession as a whole.

Chapter 4: Keynes, Post Keynesian Analysis, and the Open Economies of the Twenty-First Century

Paul Davidson

Subjects: development studies, development economics, economics and finance, development economics, post-keynesian economics

Extract

Paul Davidson Introduction It is often said by mainstream economists that Post Keynesian theory’s contribution to economic theory is all negative in that it attacks orthodox (supply side) theory without providing a positive alternative coherent contribution. Moreover, it is claimed that this failure is due to the fact that Post Keynesian theory is based on the closed economy analysis of Keynes’s General Theory, while the real world economies of the 21st century are open to world trade. Keynes might have had some relevance for the developed economies of the mid-20th century that were enmeshed in the Great Depression, but Keynes has little or nothing to offer to the open economies of a globalized economic system of the 21st century. These disparaging statements regarding both Keynes and the Post Keynesian analytical framework are wholly false and merely represent the best barbs that mainstream classical economists, who have been stung by the rapier of Post Keynesian analysis, can muster. Section I of this paper will cite chapter and verse in Keynes’s General Theory where insights and policies are suggested that are relevant today to nations in a globalized economic world. Section II briefly indicates how the orthodox theory of the efficiency of flexible exchange rates fails to meet the test of the facts. Section III focuses on one enormous positive contribution made by Tony Thirlwall that permits the analyst to understand the income effects of world trade, including the potential widening income inequalities between developed nations and those less developed countries that...

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