Abstract

KURZ, Heinz D.. On the dismal state of a dismal science?. Inv. Econ [online]. 2010, vol.69, n.274, pp.17-41. ISSN 0185-1667.

The paper discusses the dismal state of contemporary mainstream macroeconomics. This state, long decried by critics of the macroeconomics advocated by Chicago economists, was brought to the attention of the general public on the occasion of the recent financial and economic crisis. Since then several previous staunch supporters of the free-market doctrine have revised their beliefs and distanced themselves from the rational-expectations-representative-agent-efficient-markets and other approach. The idea that economics could be shaped in the image of the so-called hard or exact sciences, most notably physics, has been given a serious blow. It is then argued that the full employment assumption entertained by Robert Lucas and his followers has dispensed with the very problem that once had been the raison d'être of macro-theory, namely to explain when and why markets and especially the labour market don't clear, and what can be done about it. Lucas's enunciation of "the death of Keynesian economics" has turned out to be premature and his critique of Keynes's contribution as "just so much hot air" as simply ridiculous. The paper concludes with an alternative "classical" view of how a market economy works and what the role of prices is and in which effective demand plays a crucial role.

Keywords : crisis; dismal science; Keynes; Lucas; macroeconomics.

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