Neo-Keynesian economics

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The neo-Keynesianism is an economic theory which, in part, based on ideas of John Maynard Keynes in part on neoclassical theory. The neo-Keynesianism is not to be confused with the Postkeynesianismus and New Keynesianism (English: New Keynesian Economics).

Broad

In response to the critique of Keynesianism and in response to the experience of the economic crisis of the 1970s, developed in the 1980s, New Keynesianism, the overall significantly different from the theory of Keynes. Keynes had explained the level of output and employment in an economy from the level of aggregate demand and therefore concluded that a too high level of unemployment could only be cyclical or long term eliminated by influencing the demand. He rejected the following from the neoclassical theory theory, one could reduce unemployment by lowering wages. Keynes argued ( in the 19th chapter of his " General Theory " of 1936), that wage cuts, although positive effects triggered on the cost side on employment, this would however counteracted by the adverse effects on the demand side.

This economic view is rejected by the Neoklassikern. In particular, by John Richard Hicks, a theory for the determination of equilibrium income reduced the Keynesian theory ( IS / LM model ), Franco Modigliani, and Paul Samuelson was trying to combine assumptions of Keynes with the neoclassical theory. Thus, the so-called neoclassical synthesis developed.

The further development of the neoclassical synthesis consists among other things, from the explicit consideration of rationing barriers to labor and product market. Implicitly by a micro-foundation of the behavior of households is possible. Furthermore, can now be market situations more accurately analyzed and characterized, and thus more differentiated policy measures are proposed.

The crucial step of the neoclassical synthesis was to link the adoption of a rigid price levels with a neoclassical labor market in the IS / LM model. However, the assumption of a rigid price level proved theoretically nor empirically convincing. In contrast, the Neukeynesianismus (New Keynesian Economics) takes a more moderate position by only temporary price or wage rigidities are set up. This statement is in the short term, traditional Keynesian monetary policy measures, particularly from nature. It is disputed whether the short-term policy also has long-term effects or alone for supply-side factors are crucial.

Example of economic -measures

• Promotion of private demand by (for example) tax cuts and investment incentives
• Increased debt-financed government spending ( deficit spending ), eg by major public projects (roads, etc.)
• Interest rate cuts to stimulate private investment
• And the opposite of these three measures of rapid expansion of economic activity

Problems

• Active economic management requires timely and properly dosed application of the measures, especially since these do not act on the spot, but only after a delay.
• In the fiscal policy for the governments and parliaments often difficult, budget deficits, they have taken during the recession into account, rebalance by budget surpluses after the economy picks up, so that the debt is returned. This requirement is often not fulfilled in practice. Subsequent problems may be rising, investment obstructionist interest and inflationary trends.
• Increased wages initially lead directly to increased labor costs, which reduce the profit margin of the company at constant prices. Assuming that the rising labor costs can be pitched by the company to the end-user Prices ( for instance by a powerful market position of the company allowed the price increases ), it can lead to an increased inflation (wage -price spiral ).