Vital economic debate is alive and well in Chicago.
Post-Kenyesian economist Paul Davidson recently was invited to the University of Chicago to give a lecture on Keynes’s solutions to current economics crises – solutions that are very much at odds with the traditional approaches associated with Chicago School economics.
In his talk titled “The Keynes Solution: The Path to Global Economic Prosperity via a Serious Monetary Theory,” Davidson discusses the failures of orthodox economics and explores how Keynes would have addressed them. You can watch the lecture and download the video or audio here.
Davidson points to Keynes’s theory of liquidity to explain why laissez-faire financial markets cannot be efficient and do not solve the problem they claim to solve: optimally allocating capital. He also notes that traditional explanations of financial markets fail to explain unemployment or bubbles – phenomena that Keynes studied throughout his body of work. In particular, Davidson cites the failure of risk-management approaches that rely on a stable and knowable future, which is impossible according to Keynes’s idea of radical uncertainty.
Davidson also explains how orthodox theories guide economic policy such as Quantitative Easing (QE). Quoting Keynes on why QE doesn’t stimulate the economy, Davidson says, “If you want to get fat, buy a bigger belt,” before adding that “QE doesn’t help you get fat, but it may help drop your pants.”
In all, Davidson’s presence at Chicago shows that the school that shook up economics in the mid 20th century by thinking outside the box is still pushing the boundaries of economic thinking. Chicago remains a vital center for economic debate. INET applauds both the University of Chicago and Davidson for promoting the kind of healthy economic discussion that is necessary for the economics profession – and the economy – to get back on course. Hopefully more economics departments will follow its lead.