No End to the Consensus in Macroeconomic Theory? A Methodological Inquiry

Authors

  • John McCombie,

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    • John McCombie is Director, Cambridge Centre for Economics and Public Policy, University of Cambridge, UK and Fellow in Economics, Downing College, Cambridge; E-mail address: jslm2@cam.ac.uk. Maureen Pike is Senior Lecturer in the Department of Accounting, Finance, and Economics, Oxford Brookes University, Wheatley, Oxford, UK and Associate Member, Cambridge Centre for Economics and Public Policy, University of Cambridge, UK; E-mail address: mpike@brookes.ac.uk. They are grateful for the helpful comments of two anonymous referees.
  • Maureen Pike

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    • John McCombie is Director, Cambridge Centre for Economics and Public Policy, University of Cambridge, UK and Fellow in Economics, Downing College, Cambridge; E-mail address: jslm2@cam.ac.uk. Maureen Pike is Senior Lecturer in the Department of Accounting, Finance, and Economics, Oxford Brookes University, Wheatley, Oxford, UK and Associate Member, Cambridge Centre for Economics and Public Policy, University of Cambridge, UK; E-mail address: mpike@brookes.ac.uk. They are grateful for the helpful comments of two anonymous referees.

Abstract

After the acrimonious debates between the New Classical and New Keynesian economists in the 1980s and 1990s, a consensus developed, namely, the New Neoclassical Synthesis. However, the 2007 credit crunch exposed the severe limitations of this approach. This article presents a methodological analysis of the New Neoclassical Synthesis and how the paradigmatic heuristic of the representative agent, namely, market clearing subject to sticky prices, excluded the Keynesian notion of involuntary unemployment arising from lack of effective demand. It shows these models may be modified to produce Keynesian results, but are ruled out of consideration by proponents of the New Neoclassical approach by weak incommensurability. It concludes that because of this the New Neoclassical Synthesis, in spite of its failure to explain the sub-prime crisis, is likely to resist successfully the resurgence in Keynesian economics.

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