I tend to disagree a lot with Krugman, at least on theoretical issues. His brand of Keynesianism supposes that the system doesn't work because of imperfections. For him, the current slow recovery is due to the fact that the natural rate of interest is basically negative and you cannot use monetary policy to stimulate the economy (see critique of this here). However, on his recent debate with Lars Syll (and here; Brad De Long also posted here), a post-Keynesian, with whom I probably share a more radical interpretation of Keynes and its relevance for economic theory, Krugman seems to get things right.Naked Keynesianism
Krugman is actually right on ISLM and Minsky
Matias Vernengo | Associate Professor of Economics, University of Utah
It seems to me that there are two senses of "equilibrium" in play —
1) the neoclassical view of a single long run equilibrium in which all factors are in equilibrium, hence involuntary unemployment is impossible in the long run, and
2) the Keynesian view in which multiple equilibria are possible with differing use of the factors, so that long run unemployment is possible. The former view is that perfect markets are efficient, whereas the later view is that perfect markets exist only as a i Platonic deal and that confusing the ideal with the real overlooks the conditions of the real following upon uncertainty on one hand and the effect of cultural conventions and institutional arrangements on the other.
The third view is that economies are inherently unstable so the concept of equilibrium does not apply, although the level instability can be addressed institutionally and through policy.
As far as deciding definitely what Keynes held is probably an interminable debate that will never be resolved to the satisfaction of all parties. This is the story of interpretation in other fields.The debate is worth having to clarify both the history and the issues, and possibly to discover something new.
It seems to me that there are two senses of "equilibrium" in play —
1) the neoclassical view of a single long run equilibrium in which all factors are in equilibrium, hence involuntary unemployment is impossible in the long run, and
2) the Keynesian view in which multiple equilibria are possible with differing use of the factors, so that long run unemployment is possible. The former view is that perfect markets are efficient, whereas the later view is that perfect markets exist only as a i Platonic deal and that confusing the ideal with the real overlooks the conditions of the real following upon uncertainty on one hand and the effect of cultural conventions and institutional arrangements on the other.
The third view is that economies are inherently unstable so the concept of equilibrium does not apply, although the level instability can be addressed institutionally and through policy.
As far as deciding definitely what Keynes held is probably an interminable debate that will never be resolved to the satisfaction of all parties. This is the story of interpretation in other fields.The debate is worth having to clarify both the history and the issues, and possibly to discover something new.
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