This might be a mistake, but I am bringing a discussion from my personal blog over here (links after the jump).
I have a challenge. Can anyone think of a useful insight in macroeconomic theory which isn’t clearly stated in “The General Theory of Employment Interest and Money” ?
By “useful” I mean that it has been used to predict macroeconomic variables. I am not asking about something which is useful in obtaining insights which will, in the future, be useful for prediction macroeconomic outcomes or guiding policy (predictions of predictions don’t count).
Importantly, by useful I definitely do not mean “used by policy makers.” To violate Goodwinski’s law, Lysenko’s research was used by a policy maker, but it was not useful.
By macroeconomic *theory* I mean something other than improved estimates based on new data and uh you know having a computer (or even the idea that such things might exist). Keynes’s estimates of magnitudes were guesses.
Finally, arguments that something added to the literature after the publication of The General Theory was a big mistake doesn’t count, even if it is valid.
My question is about the insights we have obtained and whether any is both actually an insight (as demonstrated by empirical success) and new to Keynes.
Uh oh. I’ve been planning this for days, but I now wonder about an example. I think Keynes assumed prices were flexible and that Joan Robinson and Gardiner Means* had something useful to add.
A final warning: I asked about “The General Theory …” It is very unwise to assume that all ideas in that book were copied or effectively summarized in old introductory Macroeconomics textbooks.
I will respond in comments to proposed examples. The responses will be either
1) The concession that the challenge has been met
2) an argument that there is no evidence that the alleged insight is actually empirically useful
3) a quotation from “The General Theory of Employment Interest and Money” and an explanation of why I think it expresses the allegedly newer idea.
Update: Well that was quick. JW Mason has many suggestions in comments. One is my one concession Robinson had stuff to say about imperfect competition and price setting which was new to Keynes (also Kalecki but he wasn’t exactly after Keynes).
This is related to my key concession. Yes indeed, in the GT Keynes asserted that real wages were necessarily counter cyclical. They aren’t (at least not strongly). I think this is related to the pre-challenge concession above — a popular non crazy explanation is based on sticky prices.
I reply to the other suggestions in comments.
*update 2: Truncated sentence completed and a name corrected.
Simon Wren-Lewis has been writing about the anti-Keynesian school of thought and how he considers the so called new Keynesians (such as himself) to be the mainstream of modern macro.