Strand 1: Steve Keen's
accusation that New Keynesians practice Ptolemaic economics by adding epicycles to a bad base model.
Strand 2:
Joe Salerno and
Peter Klein bashing New Keynesians on price rigidity at the new Circle Bastiat blog.
Strand 3: The new
NBER WP on price adjustments that has been cited by many people.
Strand 4:
Jonathan's review of the first two chapters of the General Theory, which contrasts Keynes with the classical theory of unemployment.
My two cents:
New Keynesians really don't care as much about price rigidities for the same reasons that classical economists care about them. New Keynesians care about price rigidities for different reasons than classical economists care about them. Sure, a price rigidity might mean that adjustment is borne by the quantity sold in partial equilibrium. That's true, and not only is it true - maybe it's even important! But people have known about that little wrinkle for a long time. The real significance for New Keynesianism is not a partial equilibrium point, it's that price rigidity results in an upward sloping aggregate supply curve. That's very different from how a lot of people talk about New Keynesianism and price rigidities, I think. Most people are very tied to the partial equilibrium point, but the real action is in the aggregate.
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"New Keynesians really don't care as much about price rigidities for the same reasons that classical economists care about them."
ReplyDeleteRewrite. Is this what you mean?
'New Keynesians care about price rigidities for different reasons than classical economists care about them.'
I nearly stopped reading and got mad after I read "New Keynesians really don't care as much about price rigidities..." ;-)
Sorry.
YES! That was a little garbled on my part, wasn't it? I'm fixing it now.
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