What Are We, Chopped Liver?
I Rise, Like a Moth to a Flame...

Hoisted From Comments: Tomas Excommunicates Me from the Church of Keynes...

Hoisted from comments: Tomas attacks my claim that Jordi Gali's monetary policy advanced macroeconomics reading list from MIT is 200-proof modern Keynesianism:

Comment on: What Are We, Chopped Liver?: Good post andres. The question is, is a tortured version of neoclassical economics with sticky prices keynesian? It gets the right policy but for different reasons than Keynes. Keynes emphasiced radical uncertainty as the source of the lack in the economy of a long run equilibrium (in my reading, correct me if im wrong on this). Since choices about investments are made under radical uncertainty, the state of expectations, based on whatever, decide the future outcome and the development of fundementals. I think thats sort of how the Post-keynesian argument goes. Posted by: Tomas | May 31, 2007 at 11:35 PM.

The answer is: "Yes." Sticky-price macroeconomics in which wages fall only as a consequence of high unemployment is Keynesian--one of the strongest branches of Keynesianism, in fact. A clue to this is that the "radical uncertainty" people whom Tomas approves of (who are another branch of Keynesianism) grabbed the label "post-Keynesians" for themselves.

They can take the name "Keynesian" from me only when they pry it from my cold, dead fingers. That's what I'm saying.

Here's John Maynard Keynes

Keynes: The Economic Consequences of Mr. Churchill: I think that Mr. Churchill's experts also misunderstood and underrated the technical difficulty of bringing about a general reduction of internal money values.... [T]he minds of his advisers still dwelt in the imaginary academic world, peopled by City Editors, members of Cunliffe and Currency Committees et hoc genus omne, where the necessary adjustments follow "automatically" from a "sound" policy by the Bank of England; the theory is that depression in the export industries, which are admittedly hit first, coupled if necessary with dear money and credit restriction, diffuse themselves evenly and fairly rapidly throughout the whole community. But the professors of this theory do not tell us in plain language how the diffusion takes place.

Mr. Churchill asked the Treasury Committee on the Currency to advise him.... Their... vague and jejune meditations... are there for anyone to read. What they ought to have said, but did not say, can be expressed as follows:

Money-wages... have not adjusted themselves.... They are about 10 per cent, too high. If, therefore, you fix the exchange at this gold parity, you must either gamble on a rise in gold prices abroad... or you are committing yourself to a policy of forcing down money wages....

[T]his latter policy is not easy. It is certain to involve unemployment and industrial disputes. If, as some people think, real wages were already too high a year ago, that is all the worse....

[T[he course of events will probably be as follows. To begin with, there will be great depression in the export industries. This, in itself, will be helpful, since it will produce an atmosphere favourable to the reduction of wages.... Nevertheless, the cost of living will not fall sufficiently and, consequently, the export industries will not be able to reduce their prices sufficiently, until wages have fallen in the sheltered industries.

Now, wages will not fall in the sheltered industries, merely because there is unemployment in the unsheltered industries. Therefore, you will have to see to it that there is unemployment in the sheltered industries also.... By means of the restriction of credit by the Bank of England, you can deliberately intensify unemployment to any required degree, until wages do fall. When the process is complete the cost of living will have fallen too; and we shall then be, with luck, just where we were before we started.

We ought to warn you, though perhaps this is going a little outside our proper sphere, that it will not be safe politically to admit that you are intensifying unemployment deliberately in order to reduce wages. Thus you will have to ascribe what is happening to every conceivable cause except the true one....

Source: Keynes, John M. 1925. The Economic Consequences of Mr. Churchill, pp. 10-13.

To deny that sticky-price Keynesianism is a prominent branch of Keynesianism--well, it is like Louis Althusser's claim that everything Karl Marx wrote was corrupted by Hegelianism--and not truly "Marxist"--except for "the Critique of the Gotha Program (1875) as well as *Marginal Notes on Wagner's 'Lehrbuch der politischen Okonomie' (1882)," which are the only works "totally and definitely exempt from any trace of Hegelian influence" and hence the only texts that are sacred and authoritative. To deny that sticky-price Keynesianism is a prominent branch of Keynesianism is to pass into theology.