Capitalism, Macroeconomics and Reality
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Capitalism, Macroeconomics and Reality

Understanding Globalization, Financialization, Competition and Crisis

James Crotty

The essays comprising this collection analyze the deep flaws in the methodological foundation of mainstream economic theory, and explain how these flaws make mainstream economics more ideology than sound social science. James Crotty develops alternative theories built on realistic assumptions that can explain most of the disastrous economic and financial developments of the past four decades. His work contributes to the collective creation of a solid theoretical foundation on which to build an understanding of the ‘laws of motion’ of capitalism in the post WWII era.
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Chapter 7: Is New Keynesian Investment Theory Really “Keynesian”?: Reflections on Fazzari and Variato

James Crotty

Extract

In the Spring 1994 issue of this journal, Steve Fazzari and Anna Marie Variato pursue two related themes. First, they argue that the New Keynesian theory of financial markets provides the rigorous microfoundation for investment instabil ity missing from the less formal Post Keynesian theory. Second, though New Keynesian theory is based on the standard ergodic stochastic assumption of Neoclassicism while Post Keynesian theory posits a nonergodic world of fundamental uncertainty (FU), Fazzari and Variato argue that the New Keynesian assumption of asymmetric information (AI) makes the two theories complements rather than substitutes. While their effort at crossparadigm fertilization is admirable, the arguments they present in support of the complementarity thesis are not convincing.

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