Keynes's Approach to Full Employment: Aggregate or Targeted Demand?

Pavlina Tcherneva

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper argues that John Maynard Keynes had a targeted (as contrasted with aggregate) demand approach to full employment. Modern policies, which aim to "close the demand gap," are inconsistent with the Keynesian approach on both theoretical and methodological grounds. Aggregate demand tends to increase inflation and erode income distribution near full employment, which is why true full employment is not possible via traditional pro-growth, pro-investment aggregate demand stimuli. This was well understood by Keynes, who preferred targeted job creation during expansions. But even in recessions, he did not campaign for wide-ranging aggregate demand stimuli; this is because different policies have different employment creation effects, which for Keynes was the primary measure of their effectiveness. There is considerable evidence to argue that Keynes had an "on the spot" approach to full employment, where the problem of unemployment is solved via direct job creation, irrespective of the phase of the business cycle.

Date: 2008-08
New Economics Papers: this item is included in nep-hpe, nep-mac and nep-pke
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Citations: View citations in EconPapers (14)

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