Tuesday, October 9, 2012

When Paul Krugman was (sort of) a Post Keynesian

I thought this was interesting. The other night in our Macro Political Economy class we were going over an open economy Kaleckian model, and one of the papers the professor discussed was one by Paul Krugman and Lance Taylor in 1978, titled "Contractionary Effects of Devaluation". Lance Taylor is an important Post Keynesian, but you don't normally think of Krugman as being one!

I got a chance to take a look at the paper briefly, and had to add "(sort of)" Post Keynesian. The abstract calls it a "Keynesian model", and further down in the paper they give a little more and call it a "Keynes-Kalecki" model. It is Kaleckian insofar as it incorporates differential marginal propensities to consume between wage earners and capital owners, thus showing how income distribution influences the ultimate effect of a devaluation.

Full Kaleckian models, I should note, go a little farther than that and usually assume mark-up pricing behavior and they usually model the underutilization of capital as well (not all that controversial - think of it as an output gap). But the distributional analysis definitely has a Kaleckian flavor to it.


  1. I knew Lance Taylor and Paul Krugman collaborated, but I didn't know in that article, they referred to Kalecki AND Keynes! Interesting...however, both of them ought to know that Keynes has a more general approach to probability theory in the form of interval estimates, while Kalecki uses the "relative frequency approach" to probability. Kalecki's approach is more restrictive.

  2. Does no one else use macroeconomic models that are concerned with distributional issues, and if so, why are Kaleckian models the only ones?

  3. For what it's worth I agree with Kalecki that propensities to consume change across classes. In general propensities to spend on GDP constituents will change. I also agree think that short-run pricing models should be close to monopolistic competition (that isn't the same thing as mark-up pricing).

    Notice that this sort of thing is implicit in debt-deflation theories. If a debt-deflation theory isn't concerned about the disturbances caused by bankruptcies (and most aren't except Keen's) then the main issue is the creditors and debtors have different propensities to spend on GDP constituents.


All anonymous comments will be deleted. Consistent pseudonyms are fine.