University of Michigan Press The Keynesian Recovery and Other Essays

The coordination of economic activities involves many dimensions. Yet many macroeconomists have tended to reduce the problem to a single-dimension, that of getting prices right. Classical or New Classical Economics, which embodies the view that coordination is best left to market, is distinguished formally from Keynesian economics (which depicts an economy in need of central guidance) almost entirely by its assumption that wages and prices are perfectly flexible. This volume brings together the author’s key contributions to the development of macroeconomic theory. The essays record his attempts to deal with the coordination problems raised by Keynesian economics and the difficulty of modeling them in a way that meets the standards of rigor and coherence set by Walrasian general equilibrium theory. They range from reflections on the connections between Keynesian and Walrasian economics to nontechnical discussions on the development of macroeconomic ideas. Peter Howitt argues that this reduction of the coordination problem to sticky prices is at the root of the decline of Keynesian economics. Not only does it raise problems of legal coherence that Keynesians have not succeeded in addressing, but more fundamentally it is not very plausible. Though there is much evidence that wages and prices are indeed less than fully flexible, there is no good reason for attributing major coordination failures to the lack of flexibility. All students and scholars interested in the development of macroeconomic theory will find this a valuable and stimulating book.