Have the early coordination failures models achieved Keynes’s programme ?
The aim of this paper is to assess how three seminal coordination failure models (Diamond ((1982)1991), Howitt (1985) and Roberts (1987) have fared against ‘Keynes’s programme’. The first part of the paper characterises Keyne’s programme as consisting of the following four objectives : (a) demonstrating the existence of involuntary unemployment, (b) demonstrating that wage rigidity can be exonerated as its cause, (c) giving a general equilibrium interdependency explanation of the phenomenon within a perfect competition framework, ad (d) demonstrating that demand stimulation is the proper remedy to suppress involuntary unemployment. In a second part, I claim that no correct assessment of Keynes’s programme can be made without drawing a distinction between involuntary unemployment and underemployment. These prerequisites being settled, in part three I undertake the study of the three models to conclude that none of them succeed in achieving Keynes ‘ programme in its entirety. In the last part of the paper, I raise the issue as to whether Keynesian economists should continue to fight for the involuntary unemployment concept.
|Date of creation:||01 Jul 2004|
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- Weitzman, Martin L, 1982. "Increasing Returns and the Foundations of Unemployment Theory," Economic Journal, Royal Economic Society, vol. 92(368), pages 787-804, December.
- Axel Leijonhufvud, 1983. "What Would Keynes Have Thought of Rational Expectations?," UCLA Economics Working Papers 299, UCLA Department of Economics.
- J. A. Kregel, 1987. "The Effective Demand Approach to Employment and Inflation Analysis," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 10(1), pages 133-145, October.
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- Michel, DE VROEY, 2005. "Involuntary Unemployment : the Elusive Quest for a Theory," Discussion Papers (ECON - Département des Sciences Economiques) 2005004, Université catholique de Louvain, Département des Sciences Economiques.
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- Peter Howitt, 2002. "Looking Inside the Labor Market: A Review Article," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 125-138, March.
- Peter Howitt, 1986. "The Keynesian Recovery," Canadian Journal of Economics, Canadian Economics Association, vol. 19(4), pages 626-41, November.
- Leijonhufvud, Axel, 1983. "What would Keynes have thought of rational expectations?," Discussion Papers, Series I 177, University of Konstanz, Department of Economics.
- Roberts, John, 1987. "An Equilibrium Model with Involuntary Unemployment at Flexible, Competitive Prices and Wages," American Economic Review, American Economic Association, vol. 77(5), pages 856-74, December.
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