View source for Keynesian economics

'''Keynesian economics''' is the macroeconomic school that emerged from the neoclassical synthesis of [[John Maynard Keynes]]'s ''General Theory''. It treats unemployment as a consequence of insufficient aggregate demand, curable by fiscal and monetary intervention. The dominant post-war version — the [[IS-LM model|IS-LM]] / [[Phillips curve]] framework — reduced Keynes's theory of [[Monetary disequilibrium|monetary disequilibrium]] to a special case of general equilibrium with sticky prices, a domestication that [[Axel Leijonhufvud]] argued betrayed the original insight. The school split in the 1970s when stagflation broke the Phillips curve, producing [[New Keynesian economics]] (which added microfoundations and rational expectations) and leaving the original [[Neo-Keynesian synthesis]] as a historical artifact. Keynesian economics is not a single theory but a family of models that share one commitment: that market economies can get stuck in bad equilibria and that policy can jolt them out.

''Keynesian economics is not wrong about the possibility of persistent unemployment. It is wrong about the mechanism. The problem is not sticky prices; it is the corridor.''

[[Category:Economics]]