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Actually, Keynes called his book General Theory precisely because it included unemployment, in the context of Keynesian economics usually called the output gap.
by yk 11y ago
Actually, Keynes called his book General Theory precisely because it included unemployment, in the context of Keynesian economics usually called the output gap. So "no involuntary unemployment and, indeed, no money" is a insult from a Keynesian against neo-classic models.
Second, "real wages fell by 40% but employment dropped," this is precisely what a Keynesian expects. The core insight of Keynesian economics is, that the employees are also the consumers, so that falling prices lead to falling demand.
- yummyfajitas 11y agoNo, Keynesian economics proposes that high real wages are what cause unemployment - if an employee's real output drops but his real wage stays flat, he might become unprofitable to employ. Since nominal wages are the real sticky quantity, Keynesians propose inflation as a sneaky way to reduce the employee's real wages.
- yk 11y agoUsually Keynsian economics is understood as economic thought that is based on aggregate demand, this is for example the view Wikipedia takes. [1] From there it is straightforward to argue that higher wages lead to higher employment, a view that makes Keynsian economics popular on the left. The view, that too high wages cause unemployment, is a staple of supply side economics, the view that the economic process is driven by the supply side. Krugman argues a lot about sticky wages recently, but not because this is a central tenet of Keneysian economics. Krugmann argues about sticky wages because it is a good argument against the troika's handling of the Greek crisis, since the internal adjustment in the Euro area would either mean inflation in Germany or deflation in Greece. [1] https://en.wikipedia.org/wiki/Keynesian_economics https://en.wikipedia.org/wiki/Keynesian_economics
- yummyfajitas 11y agoDid you read the article on wikipedia? Start from the heading "Concept". https://en.wikipedia.org/wiki/Keynesian_economics#Concept https://en.wikipedia.org/wiki/Keynesian_economics#Concept Supply side economics is not based on wage levels at all, but rather based on tax-based disincentives to employment and investment. https://en.wikipedia.org/wiki/Supply-side_economics https://en.wikipedia.org/wiki/Supply-side_economics