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

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  • Pavlina R. Tcherneva

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.

Suggested Citation

  • Pavlina R. Tcherneva, 2008. "Keynes's Approach to Full Employment: Aggregate or Targeted Demand?," Economics Working Paper Archive wp_542, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_542
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    Cited by:

    1. Michael J. Murray, 2012. "The Regional Benefits of the Employer of Last Resort Program," Review of Radical Political Economics, Union for Radical Political Economics, vol. 44(3), pages 327-336, September.
    2. repec:zna:indecs:v:19:y:2021:i:4:p:94-105 is not listed on IDEAS
    3. Mariana Mazzucato & L. Randall Wray, 2015. "Financing the Capital Development of the Economy: A Keynes-Schumpeter-Minsky Synthesis," LEM Papers Series 2015/14, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    4. Mariana Mazzucato & Caetano C.R. Penna, 2016. "Beyond market failures: the market creating and shaping roles of state investment banks," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 19(4), pages 305-326, October.
    5. Jan Toporowski, 2013. "The Elgar Companion to Hyman Minsky," Review of Political Economy, Taylor & Francis Journals, vol. 25(1), pages 175-177, January.
    6. Željko Kuèiš & Irena Paliæ, 2021. "Empirical analysis of the elasticity of employment to output gap in the republic of croatia," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 19(1), pages 94-105.
    7. Éric Tymoigne, 2010. "Minsky and Economic Policy: ‘Keynesianism’ All Over Again?," Chapters, in: Dimitri B. Papadimitriou & L. Randall Wray (ed.), The Elgar Companion to Hyman Minsky, chapter 3, Edward Elgar Publishing.
    8. Thomas Habanabakize & Paul-Francois Muzindutsi, 2017. "Analysis of Government Expenditure and Sectoral Employment in the Post-apartheid South Africa: Application of ARDL Model," Journal of Economics and Behavioral Studies, AMH International, vol. 9(2), pages 224-233.
    9. Habanabakize Thomas & Muzindutsi Paul-Francois, 2018. "Analysis of the Keynesian Theory of Employment and Sectoral Job Creation: The Case of the South African Manufacturing Sector," Folia Oeconomica Stetinensia, Sciendo, vol. 18(1), pages 123-143, June.
    10. Mariana Mazzucato & Caetano C.R. Penna, 2016. "Beyond market failures: the market creating and shaping roles of state investment banks," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 19(4), pages 305-326, October.
    11. Zoltán Szalai, 2012. "A crisis of crisis management? Debates over fiscal adjustments in the European Monetary Union," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 7(3), pages 57-66, October.

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