12.1 – Introduction to a Heterodox Macroeconomic Perspective
12.1 – Introduction to a Heterodox Macroeconomic Perspective
The Importance of Ideas
The history of economic ideas has a long tradition dating back thousands of years. For example, long prior to the existence of market capitalist economies, thinkers such as Aristotle, residing in ancient Greece during the 4th century BCE, hypothesized about the ideal way to organize economic activity. The vital nature of economic organization to the health and well-being of the larger social edifice has historically been a topic of central concern.
As market capitalist economies evolved and came into existence, the desire to understand the nature of market driven economic organization, and its social impact, has not lost its importance. The essential features of a capitalist market economy, its organizing principles, stability and/or instability, dynamism, environmental and ecological impact, and its ability to both positively and negatively impact material well-being, have drawn the interest of a multitude of thinkers.
Within the context of examining capitalist market economies, some ideas have found a wide acceptance and have been successfully reproduced for a broad audience. These ideas of widespread influence tend to reside typically within the orthodox economic perspective. However, widely known or commonly accepted ideas are not necessarily the only ideas of significance. Many times, there are alternative perspectives, while oftentimes marginalized for reasons outside of their insightfulness, that provide an alternative to the orthodox economic explanation of the conditions of capitalist market economies. These lesser known but often extremely important ideas are identified as residing within the heterodox economic tradition.
Chapter Objectives
In this chapter, you will learn about:
- The original Keynesian argument
- Keynes’ law that demand creates its own supply.
- Less than full employment equilibrium.
- The Keynesian Cross Analysis
- The Policy Implications of the original Keynesian Perspective
In most modern introductory economics textbooks, any debate about macroeconomic theory and its relation to appropriate macroeconomic policies typically boils down to a discussion of the main differences within the orthodox perspective, the neoclassical and the New Keynesian arguments. The outcome of the debate centers around the idea that the New Keynesian story belongs in the short run and the neoclassical story is about the long run. As is often the case, the application of New Keynesian ideas are presented as a relatively benign social choice as opposed to a necessary action.
Importantly, both of the orthodox arguments are, at their core, laissez-faire oriented arguments. The belief is that capitalist market economies under conditions of limited governmental oversight, whether it is regulatory or fiscal and monetary policies, will in the long run gravitate to a full resource utilization (full employment) outcome that also includes a stable overall price level.