Academic Literature

Keynes argued that slumps can happen because of declining wage

‘New-Keynesian’ models use sticky prices and downward rigidity of nominal wages to get ‘Keynesian’ results: during slumps, low interest rates, money growth and additional expenditure (not necessarily government expenditure) can heal the economy and lower unemployment without inflationary consequences. The name ‘New-Keynesian’ is however a double travesty. Not because prices aren’t sticky (many are) or because downward rigidity of nominal wages does not exist (it exists). But because in the ‘General Theory’ Keynes argued that slumps can happen despite and even because of declining wage income and downward flexible wages. And because he had good reasons to do this: after 1921 english wages showed an unprecedented long-term decline while unemployment stayed way above historical levels and increased to unprecedented levels after 1929. An implication of (almost all) ‘New Keynesian’ models is that economies will bounce back to full employment if only labour and other markets are ‘flexible’ enough. The UK example shows that this isn’t necessarily the case. Keynes explained why. New Keynesian models don’t. As far as I’m concerned, data like those below should be part of any undergraduate introduction into Keynesian economics.


Chosen excerpts by Job Market Monitor. Read the whole story at Understanding Keynes: the data | Real-World Economics Review Blog.


No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Jobs – Offres d’emploi – US & Canada (Eng. & Fr.)

The Most Popular Job Search Tools

Even More Objectives Statements to customize

Cover Letters – Tools, Tips and Free Cover Letter Templates for Microsoft Office

Follow Job Market Monitor on

Enter your email address to follow this blog and receive notifications of new posts by email.

Follow Job Market Monitor via Twitter



%d bloggers like this: