Behavioural and Post-Keynesian Foundations of a New Macroeconomics

Author: Steven Hail

Hail, Steven, 2016 Behavioural and Post-Keynesian Foundations of a New Macroeconomics, Flinders University, Flinders Business School

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Abstract

Orthodox macroeconomics, as it is taught in the majority of universities around the world, and practised in governments, central banks, and international agencies, limits the range of economic policy proposals which can be given serious consideration, and consequently biases policy outcomes. This would not be a matter of concern, if the core axioms on which the dominant orthodox model is based were valid; if the empirical predictions of the model were reliable; or even if there were good reasons for limiting the range of policy proposals to be considered in line with the restrictions imposed by the orthodox model. If none of these are true, then addressing the inadequacies of modern orthodox economics is a worthwhile task, and identifying a set of theories and models which better describe people as they are, the economic system as it is, and the range of available policy options and achievable outcomes which exist, is important. The aim of this study is to treat orthodox economics, in its various forms, with respect. The intention is not to dismiss lightly the insights which have been hard won by theorists and empiricists down the years. While the contention is that academic economics, in particular, is in need of changes which can reasonably be described as revolutionary, rather than gradual and evolutionary, successful revolutions do not generally sweep away all that has gone before. That is not what is required now. What is required is to identify those ideas, models and theories which are useful; those which can be modified so that they become useful; and those which are so misleading as to be useless. Future generations of economists should embrace enthusiastically a diversity of methodological approaches and be open to ideas and evidence drawn from outside the economics profession, and most notably from psychologists, neuro-scientists, and from fellow social scientists. Nevertheless, if the modern orthodox model is to be challenged, there is a need for at least a broad outline of an internally consistent and more empirically grounded model of ‘the economic system as it actually exists’ and the study of people as they are. The thesis is that this is possible, that the essential elements of a much more useful macroeconomics already exist and in some cases have existed for a very long time, and that they are mainly to be drawn from a modern development out of Post Keynesian economics and from insights into decision making and well being developed by behavioural economists, and supported by neuroscience. The conclusion will be that macroeconomic policy proposals should be informed by stock-flow consistent modern monetary theory; that a job guarantee, or employer of last resort scheme, is a proposal which is affordable and potentially able to stabilise an unstable economy; that the elimination of involuntary underemployment can raise the subjective well-being of millions of people and promote social inclusion; and that the framing of this and other policy proposals is of vital importance, and should not be neglected by economists and the politicians they advise.

Keywords: Macroeconomics, Behavioural, Postkeynesian
Subject: Business thesis, Economics thesis

Thesis type: Doctor of Philosophy
Completed: 2016
School: Flinders Business School
Supervisor: Associate Professor Philip Lawn