Expectations Employment and Prices

I am teaching two graduate classes this quarter, and that gives me the opportunity to publicize some ideas that I'm teaching in my classes, and that I have been working on for some time. I plan to put up a series of posts explaining the ideas in my 2010 book, Expectations Employment and Prices. I will also talk about extensions of the book that I have subsequently published in peer reviewed journals.

Here is how I characterized the project in the preface to EEP.

I have long believed that modern interpreters of Keynes missed the main point of The General Theory; high unemployment is an equilibrium phenomenon that can persist for a very long time if nothing is done by a government to correct the problem. This was the point of my 1984 paper, which argued that the natural rate hypothesis is false. In the intervening years, I had time to refine this idea. Expectations Employment and Prices is the result.

I began thinking about a book on Keynesian economics, based on a search theory of the labor market, in 2003. I have had many conversations with friends and colleagues along the way and the question I hear again and again is: why write a book? It has become the norm for serious economists to convey their ideas in articles.

There is a benefit to this approach since publishing an idea in a journal subjects it to a process of peer review. But there is also a downside to publishing in refereed journals, particularly when the goal is as ambitious as the project that I am engaged in. Even the very best journals (perhaps, particularly the very best journals) are biased towards publishing very good articles that contribute to what Thomas Kuhn in his 1962 book, The Structure of Scientific Revolutions, called 'normal science'.

A successful article in a top journal takes an established paradigm and solves a puzzle that researchers can identify as a valid question. I have a more ambitious goal: I want to overturn a way of thinking that has been established amongst macroeconomists for twenty years. The rejection of several different core assumptions at the same time poses a problem if one wants to publish journal articles since the pieces stand or fall together and there is no space in a twenty-page article to explain why.

I have always found, in writing research papers, that no idea is ever complete and the same is true of a book; but more so. As this project developed I added new pieces and changed old ones. The project gained new urgency when the world economy began to disintegrate at an alarming rate in the fall of 2008. I decided at that point that it was important to publish the ideas in whatever form they were currently in and to worry about polishing them later. The theory I develop here has direct relevance to the world economic crisis and it suggests a new and potentially important solution to the problem of maintaining global stability

In subsequent posts, I will chronicle the main ideas from Expectations, Employment and Prices and talk about the ways in which my ideas about alternative policy solutions have developed.