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• GEMproject Weekly Blog

  Another AJE:M Article

  By James Annable | Apr 19, 2019

  Last week’s post illustrates why the mainstream New Keynesian journal, American Economic Journal: Macroeconomics, has since its debut in 2009 failed to explain the most important instability evidence. The core problem is that AEJ:M editors assign top priority to defending the “settled” New Keynesian market-centric general-equilibrium model class. That is a demanding task, especially since they must know their theory cannot rationally accommodate meaningful wage rigidity (MWR) or involuntary unemployment. But the gatekeepers, seemingly immune to shame, are persistent. Over time scholars have learned that publishable papers avoid the thorny New Keynesian ambition to microfound the suppression of wage recontracting.

  It’s apparently OK to do empirical analysis on macro phenomena that are rooted in MWR. But it is not acceptable to go outside the bounds of market centricity in the effort to rigorously model wage rigidity, which would enable sensible interpretation of empirical findings. Leading NK theorists believe in and impose a research agenda  that rejects the New Neoclassical Synthesis mandate insisting macroeconomics be rooted in rational behavior. The NK academy is satisfied with keystone wage rigidity, e.g. the staggered Calvo Wage, that is obviously irrational.

  As readers of this blog understand, that editorial judgement dooms NK macro theory to stabilization irrelevance. Readers also know that rational MWR results from optimizing employee-employer exchange that occurs in workplaces that are inherently restricted by costly, asymmetric information.  AEJ:M editors don’t want to hear that; they don’t want, for whatever self-interest, to acknowledge that market-centric macroeconomics is not now, and since the Second Industrial Revolution has not been, settled theory. The GEM Project easily demonstrates that the price of the mainstream NK unwillingness to intuitively generalize rational exchange from the marketplace to the information-challenged workplace is the consequent inability to explain the most important instability evidence and, therefore, provide sensible policy advice.

  The AEJ:M editorial satisfaction of with that sorry state of affairs is apparent with each publication of an article that involves, at least implicitly, unmentionable MWR and involuntary...

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