Critical Assessments of The General Theory
Edited by L. Randall Wray and Matthew Forstater
Chapter 8: A Keynesian Model for the 21st Century
8. A Keynesian model for the 21st century H. Sonmez Atesoglu* INTRODUCTION What kind of a Keynesian model can ensure that the fundamental Keynesian ideas will have staying power in the 21st century – ideas such as less than full-employment equilibrium level of output, monetary nonneutrality, an autonomous expenditures-driven economy, and others? In this chapter it will be argued that the well-known models such as the conventional Keynesian IS–LM model, the recently introduced Romer–Taylor model and the fundamentalist Keynesian Weintraub–Davidson aggregate demand and supply model are not suitable for this task.1 In this chapter, an alternative Keynesian model for aggregate output and employment is presented. The model follows from the fundamental Keynesian taxonomy between expenditures that are dependent upon and independent of aggregate income. In addition, policy implications of the Keynesian model are discussed. Finally, a Keynesian model with a monetary sector is introduced and the monetary policy aspects and diﬃculties in the implementation of these policies with respect to the US economy are discussed. The Keynesian models presented, although relatively simple, prove to be useful for interpreting past events, yield illuminating predictions and are preferable to the well-known Keynesian-type models. For many years after it was introduced by Hicks (1937), the IS–LM model was considered as the best rendition of the economics of Keynes by most economists. However, this model is fundamentally in contradiction with the Marshallian partial equilibrium approach of Keynes. The IS–LM model is a general equilibrium model (see for example, Friedman,...
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