Understanding the Distinctions Between New Keynesianism and Post Keynesianism
The economic theories of Keynesianism have evolved over time, splitting into different factions. This article aims to elucidate the nuanced differences between New Keynesianism and Post Keynesianism, offering a comprehensive overview for those interested in these economic doctrines.
The Evolution of Keynesianism
Keynesian economics emerged as a response to the Great Depression and continues to influence modern economic policies. There are several key factions within Keynesianism, each with its own unique approach and perspective. The two prominent types of Keynesianism include rigid exegetics or classical economists and post-Keynesianism, which is a more ideological and less empirically driven approach. A third group, New Keynesians, represents a pragmatic compromise between the two.
Rigid Exegetics and Post Keynesianism
Rigid exegetics of Keynesianism are deeply rooted in classical economic theories but have adopted some core ideas from Keynes. Post Keynesianism, on the other hand, is a more radical and less mainstream approach. Post Keynesians form a self-identified group united in the belief that they hold the truth, while the rest are mistaken. This sect is characterized by its inability to produce a unified and coherent body of new ideas, distinguishing it from the pragmatic nature of New Keynesians.
New Keynesianism: Practical and Model-Based
New Keynesians represent a more practical and model-based approach to Keynesian economics. They incorporate Keynesian features into otherwise neo-classical economic models, striving to make their theories more applicable and testable. The original Keynesian theory, despite its complexity, did not provide a solid foundation or empirical support. Neo-Keynesians sought to bridge the gap by integrating micro-economic principles, leading to the dominant school of US macroeconomics during and after World War II.
The Discreditation of Neo-Keynesianism
The late 1970s saw a significant shift in the economic landscape, with stagflation challenging the efficacy of conventional economic policies. This period marked the rise of Milton Friedman and the monetarists, who replaced the discredited Neo-Keynesian approach. New Keynesians responded by refining their theories to include elements from game theory, behavioral psychology, and information theory, providing more robust explanations of market dynamics and institutional behavior.
Post Keynesianism: A Return to Classical Themes
Post Keynesians reject the micro-economics linkings of Neo-Keynesianism and Neo-New Keynesianism, instead aligning more closely with classical Keynesianism. This approach is more sociological in nature, emphasizing social constructs over individual rationality and methodological individualism. Post Keynesians argue that institutions and market behaviors are better explained through social interactions rather than abstract economic models.
Key Differences and Implications
The key differences between New Keynesianism and Post Keynesianism can be summarized as follows:
New Keynesianism: Focus on practical modeling and the integration of Keynesian features into neo-classical models. Emphasizes empirical testing and theoretical rigor. Post Keynesianism: Rejects micro-economic links and instead emphasizes social constructs and sociological explanations. Believes in the importance of social and institutional factors over individual rationality.Understanding these differences is crucial for comprehending the diverse landscape of Keynesian economic theories and their applications in modern economic analysis.