The New View on Government Policy to Fight Unemployment and Inflation: A Critique

This paper seeks to look at the underlying framework of the New Consensus models of macroeconomic policy for inflation and unemployment, providing a post- Keynesian critique. In the light of this critique, the model is reformulated, with its basic structure intact, but with alternate post-Keynesian specifications of the Phillips curve being considered. It is shown that such modifications, either allow a long run trade-off between the rate of inflation and the level of output, the rate of capacity utilisation and, therefore, unemployment, or, in our preferred specification, changes in output and capacity have no implications for inflation over a large range of capacity utilisation. In all these cases, macroeconomic policy is restored to its role in maintaining full employment.