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ESRogs comments on A Keynesian key insight - Less Wrong Discussion

6 Post author: Stuart_Armstrong 19 June 2013 02:05PM

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Comment author: ESRogs 19 June 2013 04:14:23PM 1 point [-]
  1. Keynesian models do not require irrationality. Unemployment can persist (in the model) even if every agent is completely rational.
  2. Hence theoretical macroeconomics really is different from theoretical microeconomics.

Asking from ignorance here -- how does the second point follow from the first? Does theoretical microeconomics require irrationality?

Comment author: Slackson 19 June 2013 04:57:55PM 2 points [-]

The theoretical microeconomics view is the one that claims:

After all, if there is unemployment, wages should fall, making it more attractive to hire workers. Therefore the equilibrium should be that everyone who wanted to work at the wages available should work. And this is not only an equilibrium, but an attractor: free-floating wages should move the economy towards the equilibrium.

Comment author: ESRogs 19 June 2013 08:39:03PM 0 points [-]

Ah, thanks!

Comment author: Stuart_Armstrong 19 June 2013 05:16:17PM 1 point [-]

No, it's simply that unemployment cannot persist in rational microeconomic models.

Comment author: ESRogs 19 June 2013 08:37:56PM 1 point [-]

Ah, that makes sense (and seems obviously to have been your meaning in retrospect). Thanks!

Comment author: wedrifid 27 June 2013 07:56:23AM 0 points [-]

No, it's simply that unemployment cannot persist in rational microeconomic models.

Such models must include the assumption such as "all potential workers are able to provide a net positive value to an employer".

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