Looking For The Flimflam

According to Thomas Palley, Paul Krugman as well as my defense of mainstream economic science is “pure flimflam”. The Definition of flimflam is ‘nonsensical or insincere talk’ or ‘a confidence trick’. Nonsensical I justice is possible, but insincere or a confidence fox it most definitely is not. But I justice this no worse than ‘pure drivel’, which is how Lars Syll once described ane of my posts.

Despite all this, I would similar to accept a combat most macroeconomics alongside heterodox economists, as well as accept tried to initiate ane inward the past. H5N1 combat that gets beyond generalities (and get upward calling), as well as talks most actual macroeconomic mechanisms as well as what policy makers should do. This is because I’m truly puzzled most what I am doing that heterodox economists abide by as well as then wrong.

According to Thomas Palley, New Keynesian economic science “retained the nonsense of marginal productivity distribution theory spell discarding the foundations of Keynesian economics”. We “use cost as well as nominal wage rigidity to explicate cyclical unemployment”. Now I acknowledge to non existence terribly concerned most what Keynes really meant, but I’m at a loss to run into marginal productivity distribution theory at the pump of New Keynesian theory. What New Keynesian theory does need is that falls inward existent involvement rates possess aggregate need (i.e. some shape of IS curve), as well as inward the basic model this comes from changing the intertemporal blueprint of consumption. Is that wrong? What explains cyclical unemployment is existent involvement rates existence at the incorrect level. Movements inward payoff as well as prices buy the farm us out of a recession because they atomic number 82 the fundamental banking concern to bring down existent involvement rates. At the zero jump they cannot exercise that, as well as inward those circumstances wage as well as cost flexibility could brand things worse. Is that wrong?

Now it is truthful that the measure New Keynesian model assumes a labour marketplace position that clears, but a model that replaces this alongside labour marketplace position imperfect contest would non deport real differently. That is what I really teach. Equally the basic New Keynesian model assumes rational expectations, but if nosotros desire to modify this to a instance where agents brand predictable errors that is slowly plenty to do. I likewise instruct this to undergraduates. (For a pretty expert withdraw to what I teach, run into this paper past times Carlin as well as Soskice. I purpose their textbook.)

Which brings us dorsum to teaching. As I said inward my master copy post, I would similar to brand students aware of heterodox critiques, but I desire to request out where inward my mainstream account that critique would enter. (I squall upward what I instruct is pretty around how many fundamental bankers think, if non the residuum of 'my tribe'!)  I believe I tin exercise that for what I telephone band anti-Keynesians (freshwater or whatever), although I stay at a loss equally to how flexible prices tin buy the farm us out of a liquidity trap when fundamental banks target inflation (see here as well as here). So where (in terms of macroeconomic mechanisms) exercise I locate the heterodox (post-Keynesian or whatever) critique of New Keynesian analysis? This is non an insincere or fox (flimflam) question.