What Is New Keynesian Economics?

Neo-Keynesianism refers to the theory formed after the 1970s by absorbing certain views and methods from non-Keynesianism.

Neo-Keynesian

(Economic theory)

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In response to the so-called "Keynesian crisis of the theory" in the 1970s, a new school of advocates of government intervention in the economy in the 1980s-the New Keynesian economics appeared in Western academic circles, ^[1]

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Emphasizing the various imperfections in the labor market, product market, and capital market, neo-Keynesian economics is viewed by its proponents as an "exciting" and "lively research outline." However, according to critics, the New Keynesians have done the work of "new bottles and old wines". It remains to be seen how successful the revival of Keynesian economics will be. (Note: For the above review and analysis, see Snowdon et al .: A Modern Guide to Macroeconomics, pp. 328-330.)

New Keynesian competition with imperfections

Based on the premise of imperfect competition and incomplete information , neo-Keynesianism analyzes and demonstrates the existence of nominal and actual wage and price stickiness, and thus draws the conclusion that the capitalist market economy is unstable (the market is always difficult to clear) And capitalism society will inevitably produce a large number of involuntary unemployment. Therefore, the necessity of government intervention in the private economy and the invalidity of policy measures are raised. All these are close to the socio-economic realities of capitalism.

Since the 1960s and 1970s, various parties in the Western economic circles have been debating how to combine the microeconomic and macroeconomic mechanisms. Among them, Keynes's macroeconomics is considered to lack the theoretical foundation of microeconomics. In this regard, neo-Keynesian economists tried to absorb the neoclassical rational expectation hypothesis, or even acknowledge the existence of natural unemployment rate to supplement the microeconomic theoretical basis of Keynes macroeconomics. However, such a combination and addition is an important part of the departure from the Keynesian revolution. As Mrs. Robinson pointed out, the Keynesian revolution is, theoretically, "a shift from a balanced perspective to a historical perspective; a shift from the principle of rational choice to decision-making issues based on speculation or convention", and due to the future "Strict rational behavior is impossible. A large part of economic life is handled according to accepted conventions. (Note: Joan Robinson:" What's the Results of the Keynes Revolution? "," Modern Foreign Economics " Selected Papers, Series I, Commercial Press. 1979, pp. 20, 21.) "It can be seen that neo-Keynesian economists attempt to" rational expectations "and thus use" rational economic people "to fill Keynesian macroeconomics. The micro-foundation is essentially not a "development" of Keynesian economics, but a concession and restoration of the traditional economics before Keynesian. It should be noted that the emphasis on "rational economic people" in western neo-classical economic theory is being criticized by many scholars. They believe that if the focus is only on the emphasis on "rational economic people," the most intellectually normal people are ignored. Human behavior and decision-making are rarely determined by economic considerations, so they ignore the importance of social organizations, deny collective action, and deny contradictions or conflicts between different interest groups, different classes or classes. In this way, it is inevitable that its economic analysis will easily lead to wrong conclusions, which will lead to wrong decisions.

As for the natural unemployment rate, it is just another term for "frictional unemployment" and "voluntary unemployment" in traditional western economics. Its level change is determined by the structure of the labor market, so changes in the natural unemployment rate can be taken as a pretext for failing to achieve full employment, that is, there is no involuntary unemployment as Keynes pointed out. Obviously, this is indeed a major concession for neo-Keynesians, as some economists have commented. In short, as some western economists have pointed out, "Although macroeconomics requires a microfoundation," "microeconomics also requires a macrofoundation", and "microeconomics cannot effectively solve macroeconomic problems.