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Neither new nor Keynesian: A critique of the new Keynesian programme

Sawyer, Malcolm
A ‘new consensus in macroeconomics’ has recently emerged which is closely linked with new Keynesian economics and which is highly influential in policy-making circles. This paper outlines the ‘new consensus in macroeconomics’, and argues that in virtually all respects it cannot be considered Keynesian, and in many respects it is not new either. Keynesian economics is viewed in terms of the role of the ‘principle of effective demand’ in both the short run and the long run with investment having a key role, the rejection of Say’s Law and market adjustment processes to generate full employment, and the world characterised by pervasive uncertainty. The NCM is characterised by optimising behaviour under full information, the reinstatement of Say’s Law, the denial of effects of demand on supply, and a focus on monetary policy and a denial of the role of fiscal policy. It can be readily seen not to be Keynesian. The crucial role given to the ‘natural rate of interest’ indicates its lack of novelty with a return to Wicksell.