FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 12 November 2015

Keynesian New Economics

by Dirk Ehnts, Econoblog101

As macroeconomics was transformed in response to the Depression of the 1930s and the inflation of the 1970s, another 40 years later it should again be transformed in response to stagnation in the industrial world.

Larry Summers wrote these lines in a recent article at the Washington Post. Since I have been doing research on "Keynesian New Economics" in response to the crisis, let me briefly summarize what I came up with.

  1. methodology: Keynesian New Economics should be based on a balance sheet view of the world. We know for some considerable time that money spent creates incomes; we also know that it makes sense to examine private, public and external sector and their respective net debt balances as well as the changes thereof

  2. equilibrium: we have to move away from the idea that markets clear because supply equals demand at some equilibrium price; this is not how labour markets or the money market work. So, two out of three markets do not work with this neoclassical closure but instead rely on different mechanisms

  3. money: student and scholars need to present the way actual monetary systems work; how is central bank money created/destroyed? what about government bonds? what about endogenous bank money (=deposits)?

  4. NIPA/FOF/BOP: understanding the interactions of the economic subjects should be at the core of Keynesian New Economics. National Income and Product Accounts, Flow-of-Funds and Balance of Payments need to be explained step-by-step so that it is clear which parts are moving and which are reflections of changes elsewhere. In a financial system run by double entry book-keeping, not all entries arise from rational behaviour of individuals. This is especially so for aggregated like the current account of a nation or the public debt.

  5. policy: we have to understand that public debt is something fundamentally different from private debt. While in a sovereign monetary system the government cannot run out of money, this is a big problem for the private sector (or parts of it). Fiscal policy can have unwanted side effects (like current account deficits), but it is not the expansionary fiscal spending per se that is bad. Monetary policy has in effect been used to finance one private sector bubble after the other and apparently cannot do so anymore because we hit the zero lower bound. More government spending is needed for the private sector to create the next big leap forward.

There is a long way to go, but some economists already started (here is a simple model which incorporates issues 1-5). If economics fails to reform, the times of economists as influential advisers of policy makers will be over.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Opinion Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Opinion


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
A Short Note on a Connection Between Marginalist Economics and Folk Medicine
Run A High Pressure Economy? Janet Yellen Does Not Understand the Problem
News Blog
A Pony And His Beloved Teddy Bear Reunite After Being Apart For 3 Years
October 2016 Kansas City Fed Manufacturing Remains In Expansion
September 2016 Median Household Income Not Statistically Different Than The Previous Month
September 2016 Pending Home Sales Index Improves
22 October 2016 Initial Unemployment Claims: Rolling Averages Marginally Worsen
Durable Goods New Orders Marginally Declined in September 2016
Infographic Of The Day: 41 Interesting Facts About Tesla Motors
Early Headlines: Asia Stocks Down, Oil Lower, Great Lakes Wind Power, Chinese Moving Mfg To US, Tesla Reports Profit, Dems Forecast To Take Senate, China's Debt And More
How Miller Stacks Up Against His Draft Class
Inside The Machine: How Two Nobel Winners Taught Us How Companies Tick
Healthcare's Dirty Little Secret: Results From Many Clinical Trials Are Unreliable
The Cleveland Indian's Unique Use Of Andrew Miller
What We Read Today 26 October 2016
Investing Blog
Thirsty For Income? How To Thrive In This Yield Desert
Apple's First Annual Sales Decline In 15 Years
Opinion Blog
A Hard Brexit And Reduced Migration Won't Benefit UK Workers
What Triggers Collapse?
Precious Metals Blog
Inflation Surging As Platinum Signals Stock Market Decline
Live Markets
27Oct2016 Market Update: Wall Street Flat, Crude Prices Recovering, US Dollar At Resistance And Gold Struggling At Support
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government

Crowdfunding ....



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved