Edited by Robert W. Dimand and Harald Hagemann
Chapter 89: Keynesianism in the United States
Two issues are at the heart of Keynesian economics in the United States, one theoretical and the other practical. The theoretical issue regards whether Keynes’s demonstration in The General Theory of Employment, Interest and Money that there can be involuntary unemployment in macroeconomic equilibrium requires an assumption that wages, prices and/or interest rates are “sticky” (inflexible) downward, or some other market imperfection. The practical issue is related to the theoretical issue. Keynesians have tended to be pragmatic when it comes to economic policy, preferring to use fiscal and monetary policies to pursue macro goals of full employment, price stability and stable economic growth, rather than focusing on efforts to remove the imperfections, which would permit market forces to work out the short-term Keynesian troubles. The most recent mainstream incarnation, so-called “new Keynesian” economics, has all but abandoned the important remaining economic and political legacies of the tradition.
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