Raising Keynes

A Twenty-first-Century General Theory

Everything you learned in your mainstream macro course about the determination of output and employment is at best half right. Flexible wages are not sufficient to restore full employment after a shock to the economic system; both theory and experience demonstrate this. Interest rates are not determined by saving and investment but in markets for financial assets, by stocks rather than by flows. Inflation targeting should not be the lodestar of demand management in the long run: there is a trade-off between output and price stability in the long run as well as in the short run. Fiscal policy is a necessary tool not only to avoid unemployment but also for achieving the right mix of output; budget deficits may be appropriate even when the economy is running hot.

Building on John Maynard Keynes’s vision in The General Theory of Employment, Interest and Money, my book lays out an approach to macroeconomics that substantiates these claims. The starting point is Keynes’s intuition that there is no mechanism within a capitalist economy that ensures full employment. Even if deregulating the economy could make it more like the textbook ideal of perfect competition, this would not address the problem that Keynes identified: the potential inadequacy of aggregate demand.

The problem is not the warts on the body of capitalism but capitalism itself. Raising Keynes provides the foundation for a twenty-first-century macroeconomics that can both respond to crises and guide long-run policy.

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Stephen Marglin’s magnum opus makes a powerful case that we cannot expect the economy to solve its own problems, and that instead economists and policymakers need to put persistent unemployment at the center of their thinking in order to both better understand the economy and to make a stronger case for using fiscal and monetary policy to change it for the better.

– Jason Furman, Harvard University, former Chairman of the U.S. Council of Economic Advisers

This is a thought-stimulating reconstruction of John Maynard Keynes’s insight that market economies do not automatically gravitate to full-employment equilibrium even if prices are flexible. Stephen Marglin shows, with modern analytical tools and (yet) in an often entertaining style, how normal signal processing leads to real-time adjustments to shocks that can move a competitive economy out of equilibrium in the short run and into a different equilibrium in the long. He succeeds in demonstrating this without invoking all those frictions and imperfections so indispensable to New Keynesians. The book opens a wide array of unorthodox, but well-founded perspectives on past and current issues of economic policy. It is the fruit of life-long research, and it deserves a wide readership.
– Hans-Michael Trautwein, University of Oldenburg, Germany

Raising Keynes is a work of great significance that anyone seriously interested in how capitalism functions and malfunctions should read carefully. Stephen Marglin succeeds in clarifying the central ideas in John Maynard Keynes’s revolutionary macroeconomic framework, while also extending and deepening those ideas in important ways, applying the ideas to our contemporary conditions, and also delivering devastating critiques of orthodox macroeconomic theory and practice. The book is also highly accessible for a work of this nature, without skimping at all on technical details—an almost impossible combination to pull off.
– Robert Pollin, University of Massachusetts Amherst

Marglin has taken 80 years of neoclassical distortions of Keynes, presented them with great clarity in their own language, and then pounded them into dust, pushing the detritus back into the faces of the high priests of the neoclassical synthesis, the New Keynesians, and the New Classical Economists. Raising Keynes issues a challenge that they would be cowardly to refuse – which is not to suggest that they won’t do their best to ignore it.
—James Galbraith, University of Texas at Austin

Stephen Marglin’s Raising Keynes: A Twenty-First Century General Theory is a landmark achievement. Marglin offers a restatement and reformulation of the central message of Keynes’ General Theory… defending it not only from decades of criticism by Keynes’ detractors, but also from what he regards as decades of mischaracterization by the exponents of Keynesian macroeconomics.

This might seem well-traveled ground, and perhaps of purely antiquarian interest at this stage in the development of macroeconomic thought. But… public and professional debates have shown that there is far from a settled consensus about even the most fundamental questions about the economics of severe depressions. Marglin’s review of the issues could therefore not be more timely. And he goes well beyond a simple rehearsal of familiar arguments, carefully developing a more technically sophisticated and internally coherent analysis than the one that Keynes managed to present in the 1930s.
– Michael Woodford, Columbia University

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“L’économie du futur ne ressemblera ni au passé ni au présent,” Le Monde

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