Tuesday, December 18, 2012
A Critique of Jeff Sach's Dismissal Of Keynesian Policies
These economists argue that Jeff Sachs did not offer empirical evidence to support his conclusion that Keynesian stimulus has not worked, and that austerity has not been a problem in the UK and in Europe. They also argue that Sachs' critique of monetary policy is inconsistent with his attack on Keynesian policies. There is no role for for monetary policy to affect real interest rates in macroeconomic models outside of Keynesian models. Therefore, it is inconsistent to argue that the Fed created low interest rates unless one assumes a Keynesian macroeconomic model.