Seventy-five years ago, in The General Theory of Employment, Interest and Money, John Maynard Keynes wrote:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. (1973, 383)

Plus ça change, plus c’est la même...

The empirical literature on the NAIRU is voluminous—beyond comprehensive reviewing. But even though the literature is large, opinion is uniform that “excessive” labor market regulation or “rigid” labor market institutions are the root cause of persistent high unemployment. The debate, accordingly, centers on which forms of regulation or which labor market institutions are most to blame, with the villains in the piece commonly being played by unemployment benefits, collective bargaining structures, and labor taxation (see Nickell and Layard 1999; Nickell, Nunziata, and Ochel 2005). However, labor economists Richard Freeman (2005) and David Howell (2006) have argued that the strong...

The adequacy of any model meant to explain macroeconomic growth and unemployment depends on the economist’s ability to identify and include the relevant factors. The decision of which variables to incorporate into a model is what Keynes termed a “judgment of value.” It involves a mixture of intuitive selection and formal accounting principles. “The object of our analysis,” Keynes (1973, 297) wrote, “is to provide ourselves with an organised and orderly method of thinking about particular problems.” Building on Naastepad (2006) and Naastepad and Storm (2007), we have organized our thinking on growth and employment in a demand-led growth model...

Nicholas Kaldor argued that theory construction should begin with a summary of relevant facts, but because the “facts, as recorded by statisticians, are always subject to numerous snags and qualifications, and for that reason are incapable of being summarized,” he suggested that theorists “should be free to start off with a stylised view of the facts—i.e. concentrate on broad tendencies, ignoring individual detail” (Kaldor 1965, 178). Although many have scoffed at Kaldor’s notion of stylized facts, it is clear that these can provide a useful initial discipline in the construction of economic theory and inform the formulation of statistically...

Goethe’s Doctor Faust, a physician, lawyer, and theologian, in a famous pitiful soliloquy, despairs of the futility of his scholarly pursuits of the spiritual world and yearns to fully experience the joys and sorrows of earthly life. He invokes the Spirit of the Earth, who shows him clearly his divided nature, the dualistic dilemma between spiritual longing and earthly desires, aspiration and indulgence. Lance Taylor (2010), who knows his Goethe, uses the analogy of Goethe’s “two-souls problem” to describe the distributive strife within capitalism between the soul of labor and the soul of capital. As Faust, aggregate demand hosts within...

The growth model analysis of Chapter 3 has shown that NAIRU-based policies of real wage restraint and labor market deregulation may actually depress accumulation and growth, petrify technological progress, and thus stifle productivity growth without significantly reducing unemployment. These effects were found to occur in strongly wage-led economies, but we have seen that NAIRU-based policy is likely to reduce labor productivity growth in profit-led systems as well. While the growth model analysis has yielded important insights into the differential macro adjustments to labor market reform in wage-led and profit-led economies, it could be claimed that the steady-state growth paths analyzed...

Partly in response to social Darwinism, which is so characteristic of mainstream economics, Russian prince (and anarchist) Pyotr Kropotkin argued that cooperation and mutual aid are as important in the evolution of the species as competition, antagonism, and mutual strife, if not more so. Kropotkin’s ideas, though unorthodox, have become scientifically respectable and have found their way into modern sociobiology.¹ Kropotkin did not deny the competitive form of struggle, but he argued, as evolutionary biologist Stephen Jay Gould explained, that

the co-operative style had been underemphasized and must balance or even predominate over competition in considering nature as a whole....

James Galbraith, in an early critique of NAIRU economics (1997), asks whether economics can live without the NAIRU. Galbraith thinks this is not only possible but desirable, because momentous public policy decisions cannot be based on a theoretical and empirical construct this weak.¹ We agree. The NAIRU, as a constant attractor, cannot provide appropriate guidance to public policy making—because it does not exist. The fundamental assumption of NAIRU economics that demand adjusts to supply, while supply is independent of demand, is wrong. We presented, in Chapters 3, 4, and 5, the contrary theoretical argument that supply is influenced by...