Saturday, September 11, 2010

The Self-Defeat of the Keynesian Cross

This article demonstrates that continuous fluctuations in output and employment cannot be produced by the standard “Keynesian Cross” model as formulated by Paul Samuelson. The model implies zero consumption expenditure for the unemployed, effectively eliminating any possibility of a prolonged recession in a market free of external intervention. This addresses the recent remark made by Paul Krugman that Austrian economists are “Keynesians during booms without knowing it.” Given the logical implications of the strict architecture of the Keynesian model, it turns out that Keynesians are Austrians during recessions “without knowing it.” All the rhetoric aside, given the inadequacies of the Keynesian paradigm, anyone interested in explaining the origins of the business cycle should also be interested in a serious study of the other pertaining theories.
You can read the entire article here.

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