Post Keynesian school
The Post Keynesian school is a school of economic thought influenced by Keynes himself and by the French tradition that shuns neoclassical methodology.
The term Post Keynesianism appeared in the 70s of the 20th century. In its origin it served to refer to any economic idea based on the General Theory of the British economist John Maynard Keynes.
Its main characteristics are: its rejection of the ideas defended by the neoclassical school and its commitment to a fiscal policy that promotes employment and income. Among its participants there is a wide variety and heterogeneity. The three main strands are the Fundamentalist Keynesians, the Kaleckians, and the Institutionalists (Institutional Economics)
The background: Keynes
In what is known as the "Interwar Period", after the happy 1920s and in a context of exceptional economic crisis, Keynes proposed a series of economic policies aimed at alleviating the effects of the Great Depression. Keynesianism was committed to mitigating the imbalances that business cycles caused in capitalist economies.
To do this, he raised the need for state intervention in the economy. Keynes tried to solve serious problems: demand crises and unemployment. Between these there was, according to Keynes, a cause-effect relationship, according to which the first was the cause of the second. Starting from these premises, in subsequent decades, various economists raised new challenges, new solutions and different perspectives, alternatives to Neoclassical economics. Post Keynesianism would be one of these alternatives.
The development of Post Keynesian theories
In the 70s of the 20th century, the term Post Keynesianism appeared and became popular. Before 1975 this term referred to any attempt to develop the General Theory of the British economist. Although there are differences between the various branches that start from the common trunk, there are some fundamental assumptions, on which its postulates are based:
- The capitalist system does not naturally offer a tendency towards full employment. This requires public investment.
- The fundamental element of the level of aggregate demand in a closed economy is fixed investment.
- There is uncertainty about future events, which determines the investment and management decisions that, despite everything, try to anticipate events.
The fundamental elements of Post Keynesianism
Along with the assumptions we have outlined, there are a number of fundamental elements in Post Keynesian economics, which we point out below:
- The first element is related to the principle of "effective demand". For Post Keynesians, demand is what, in the long run, determines the economic situation in the long run. In other words, demand is what, ultimately, conditions supply and that production tends to adjust to demand.
- The second element is the concept "dynamic historical time." For Post Keynesians, decisions made at one point in time influence subsequent decisions. In addition, the equilibria to which the economic system reaches arise, precisely, as a consequence of the development of processes.
- The third element is "price flexibility". Post Keynesians point out that the consequences of this flexibility are negative, insofar as they affect real wages, which can be reduced. This generates a loss of purchasing power for workers, which ultimately affects demand and, therefore, the economy as a whole.
- The fourth element is the "monetary economy of production." This term refers to the fact that the agreed wages are made based on money, and not on production measures. A characteristic of family economies is that of financial assets. The use that is made of money, as well as the predisposition to predisposition to give up less liquid assets can cause a crisis.
In addition to these elements, it should be noted that in Post Keynesianism it is understood that reality is multiform. This means that in the face of neoclassical approaches, they accept that there may be theories or approaches that complement each other. Consequently, with this plurality it is possible to approach reality in a more effective way.
Post Keynesians: an alternative model in the face of the crisis
During the 1970s, Keynesian policies began to be discredited by stagflation. In the 1930s and 1940s, unemployment and deflation coexisted, so using expansionary policies reactivated the economy. However, around the 1970s the phenomenon of stagflation emerged. Scenario under which Keynesian policies were not only ineffective, but were counterproductive.
Neoliberalism responded through the Washington Consensus. This model was committed to deregulating the economy, minimizing state intervention and liberalizing world trade. With the crisis of the second decade of the 21st century, it was neoliberalism that began to be criticized and identified as the cause of the crisis.
Post Keynesian proposals are based on the intervention of the public administration in the economy, implementing minimums, a progressive fiscal and tax system, and reversing the privatization of certain economic and social sectors. The goal: increase demand to keep the economy in good health. However, its detractors believe that these measures, on the other hand, would only serve to interfere in the market, altering its normal functioning, which would have serious consequences.