Economics and similar, for the sleep-deprived
A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?
Update: seemingly not
Update: Oh yeah!
Wednesday, March 14, 2012
Are we still doing this one?
This debate is pointless. The model of the General Theory is a rational expectations model, in which all expectations are borne out in equilibrium and in which all parties optimise intertemporally. Keynes didn't actually believe this was how the economy worked (hence Chapter 15) but his actual model was completely microfounded. He also has Chapter 19 (Changes in Money Wages) which demonstrates that the General Theory model does not depend on price rigidities and so there is no need to have a debate about "microfoundations" for them either.
In general, it is difficult to see why people would have got so excited about Keynes if all he had been saying is that sticky real wages can cause unemployment.
Quote of the day is Geoff Harcourt's: "The term 'price inflexibility' should be abandoned altogether. In [this model] we are in a world where firms can change prices as often and asquickly as they wish, and yet is utterly non-Walrasian. If there are also costs associated with adjusting prices these, interesting though they may be, are to be blunt, irrelevant to the Keynesian theory. It is a hard thing to have to say of thirty years of intellectual fireworks let off by some of the best minds of our profession".
this item posted by the management 3/14/2012 01:21:00 AM