Edited by Jesper Jespersen and Mogens Ove Madsen
Chapter 3: The crisis in macro and the limitations of the economics of Keynes – or why the master will not return unless his General Theory is dressed up in neo-modern clothes
This chapter addresses the crisis in macro and the possibility that this could lead to a revival of the General Theory, both in teaching and policy advice, as explicitly advocated by many recent books (see for example, Lance Taylor’s Maynard’s Revenge, Robert Skidelsky’s Keynes: The Return of the Master or Paul Davidson’s The Keynes Solution). In my view, this is unlikely to happen. The General Theory will not come back into fashion without substantial amendment. Like it or not, even in the face of a deep crisis such as the present one, most economists simply regard Keynesian economics either as the source of some ad hoc or last resort policy remedies devoid of intellectual appeal (such as the need to fix the economy by running budget deficits) or, from the theoretical point of view, as synonymous with a vast array of ‘sub-optimal results’ caused by market imperfections which often turn out to be little more than sophisticated versions of pre-Keynesian stories. I suggest that to become really fashionable again – in both policy and theoretical terms, in such a way as to inspire new research programmes – those believing in the potential of ‘Keynesian theory in the spirit of Keynes’ should not just rely on the (necessary) critique of standard theories but also come to terms with some key defects in both the General Theory and in post-Keynesian approaches.
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