Many of my favorite people are strident anti-Keynesians. In their eyes, Keynesianism isn’t just false; it’s incoherent pseudo-science, a blight on our fair economics profession. Those who think of Keynesianism as pseudo-science generally hold all Keynesians in one dim view. They don’t distinguish between reasonable and crazy Keynesians because they consider all Keynesians crazy.
If you’re one of these anti-Keynesians, I have a challenge for you: Read Truman Bewley’s Why Wages Don’t Fall During a Recession from cover to cover. Please.
You know I love you guys. I think many of you reciprocate my warm feelings. And I’m willing to bet your esteem for me that, after reading Bewley’s book, you will agree that none of the following quintessentially Keynesian claims qualify as pseudo-science. Furthermore, you will accept that at least two of these claims are, if not true, then at least plausible.
1. Nominal wage rigidity plays a large role in the modern U.S. economy.
2. A substantial fraction of this nominal wage rigidity stems from basic human psychology, not government regulation.
3. Nominal wage rigidity is sufficiently durable to create a long-run inflation-unemployment trade-off at low inflation rates.
If any anti-Keynesian registers for my challenge in the comments, I will happily link to whatever reaction you choose to blog.