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Somebody Has to Be the Pontifex Who Decides What "Keynesian Economics" Is: And I Elect Mark Thoma to Be That Bridge-Builder

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Mark Thoma:

Seven Myths about Keynesian Economics: The claim that Keynesians are indifferent to the long-run is one of many myths about Keynesian economics…. This has it backwards. Conservatives who oppose Keynesian economics are not concerned enough about short-run economic problems, particularly unemployment, and failing to address our short-run problems can bring long-run harm…. Keynesians care very much about the long run, but they do not go along with the idea that neglecting short-run issues is the best way to solve our long-run problems.

Myth 2: Keynesians are not concerned with economic growth: Keynesians understand the value of economic growth, but they want firms to take full account of externalities such as carbon emissions, and they care how growth is distributed…. Growth is the key to rising incomes, but growth must lift all boats, not just the yachts, and avoid fouling the water.

Myth 3: Keynesians are advocates of big governmen…. When the [policy] changes are truly temporary as Keynesian policy requires, the average size of government does not change at all.

Myth 4: Keynesians do not care about government debt: Keynesians understand that debt can be problematic under certain conditions, and that we need to address our long-run debt problem. The issue is getting the tradeoff between the cost of debt and the cost of unemployment correct….

Myth 5: Keynesians are unconcerned with inflation: Keynesians care first and foremost about maintaining high and stable levels of employment and income for working class households. To the extent that inflation interferes with these goals, of course it is of concern. What Keynesians object to is the misstatement of the costs of inflation versus the costs of unemployment….

Myth 6: Keynesians do not believe in monetary policy: Keynesians don’t deny that monetary policy can help the economy, but they disagree with those who say that monetary policy alone can cure deep recessions….

Myth 7: Keynesians use old, outdated, and inferior models: When the crisis hit and modern macroeconomic models failed, many of us turned to the old Keynesian model for guidance, a model built to answer the kinds of questions we were confronting. We didn’t have time to wait for the modern models to be fixed, and the old Keynesian model proved useful…. At every point in the crisis Keynesians used the very best model available without being overly concerned with when the model was built….

Interestingly, as modern “New Keynesian” models have been fixed they have generally supported the policy recommendations that came out of the older models. If those policies had been aggressively pursued, problems such as long-term unemployment might not be so bad today – even at this late date there’s still a need to do more.