Macroeconomics textbooks — how about checking the facts …

26 May, 2014 at 21:58 | Posted in Economics | 5 Comments

chadAmong a couple of really good intermediate – neoclassical – macroeconomics textbooks, Chad Jones textbook Macroeconomics (3rd ed, W W Norton, 2014) stands out as perhaps the best alternative, by combining more traditional short-run macroeconomic analysis with a marvellously accessible coverage of the Romer model – the foundation of modern growth theory.

Unfortunately it also contains some utter nonsense!

In chapter 7 – on “The Labor Market, Wages, and Unemployment” – Jones writes (p. 181):


The point of this experiment is to show that wage rigidities can lead to large movements in employment. Indeed, they are the reason John Maynard Keynes gave, in The General Theory of Employment, Interest, and Money (1936), for the high unemployment of the Great Depression.

But this is pure nonsense. For although Keynes in General Theory devoted substantial attention to the subject of wage rigidities, he certainly did not hold the view that wage rigidities were “the reason … for the high unemployment of the Great Depression.”

What Keynes actually did argue in General Theory, was that the classical proposition that lowering wages would lower unemployment and ultimately take economies out of depressions, was ill-founded and basically wrong.

To Keynes, flexible wages would only make things worse by leading to erratic price-fluctuations. The basic explanation for unemployment is insufficient aggregate demand, and that is mostly determined outside the labor market.

Unfortunately, Jones macroeconomics textbook is not the only one containing this kind of utter nonsense on Keynes. Similar distortions of Keynes views can be found in , e. g., the economics textbooks of the “new Keynesian” – a grotesque misnomer – Greg Mankiw. How is this possible? Probably because these economists have but a very superficial acquaintance with Keynes own works, and rather depend on second-hand sources like Hansen, Samuelson, Hicks and the likes.

But the problems don’t end here. The rather embarrassing history revision on Keynes is followed up a couple of pages later with the following gobsmacking remark:

In recent years, different countries in Europe have sought to reform their labor market institutions. As a result, unemployment rates in Spain, Ireland, and the Netherlands, for example, have decreased substantially from levels in the 1980s.

Checking up on Spain I get the following graph:
unemployment spain2

Hardly consistent with the textbook’s “have decreased substantially” …



  1. Professor Syll,
    Have you ever had a chance to take a look at Wendy Carlin & David Soskice textbook, “Macroeconomics: Imperfections, Institutions and Policies,” and their earlier “Macroeconomics and the Wage Bargain?” If so, what is your opinion?

    • Sorry, but no. I’ll ask my secretary to order a copy of the new book, and maybe I’ll be back with some comments when I’ve had time to read it 🙂

  2. Keynes felt that increasing governmental expenditures, and therefore incuring a deficit, would increase aggregate demand. Also, Keynes advocated liquidity preference which implies maintaining a constant money supply.

  3. Might I draw your attention to a truly jaw dropping performance (BBC Radio 4 “Analysis” Mon 26th April 8-30pm) by Deirdre McCloskey re inequality, poverty etc.
    Managed to listen to end myself but only just, she’s a true believer/zealot alright

  4. “The basic explanation for unemployment is insufficient aggregate demand, and that is mostly determined outside the labor market.”

    How can this be? The less people that are working and the lower the wages, the less the demand for final goods and services. If the labor market determines wages, then it also affects aggregate demand.

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