The relevance of new Keynesian models to contemporary business management cannot be overstated. In an era when globalization is on the ascendancy and most business corporations having an international presence, the reasons for worker layoffs, increasing labour costs, etc are difficult to grasp. The new Keynesian framework addresses these gray areas of international economy. For instance, new Keynesian models suggest that the rationale behind worker layoffs during economic downturn is not due to high labour costs. To the contrary, it points to the overall fall in sales for laying-off employees (Eichner, 1979). This new model is consistent with the original Keynesian economics, in that, it states that the very existence of the phenomena of business cycles is an evidence of economy-wide market failure. Further,
“This also implies accepting the existence of involuntary unemployment, the non-neutrality of money, sticky prices and wages, and non-clearing markets. However, it is important not to assume that new Keynesians are protagonists in the monetarist-Keynesian debate because new Keynesians do not hold a unified view with respect to the relative potency of fiscal and monetary policy nor do they ‘. . . necessarily believe that active government policy is desirable’. The recent work of Edmund Phelps has also inspired the emergence of a ‘structuralist’ branch to the new Keynesian school where non-monetary models are given emphasis” (Klein, 2001)
The fact that the General Theory outlasted controversies and disagreements pertaining to it at the time of its introduction says something about its value to modern commerce. The General Theory was a compendium of several ideas. The problems arose when people picked a particular set of ideas for analysis while neglecting the rest. Those economists who tried to pinpoint the essence of Keynes’ ideas inevitably attained an incomplete and incomprehensive understanding of the General Theory. Hence, an acknowledgement of the expansiveness of Keynesian economics is key to its proper interpretation and application (Klein, 2001).
Other eminent economists such as Milton Friedman and Gregory Mankiw are strong advocates of certain aspects of Keynesian economics. For instance, both Mankiw and Friedman agree to Keynes’ assertion that the business cycle represents a kind of large-scale market imperfection. Mankiw even goes on to state that the breakdown of the Phillips curve does not discredit orthodox Keynesianism. Rather, a more robust Phillips curve, one that addresses deficiencies on the supply side, was the answer. This goes to show that where Keynesian economics fails, it is not due to fundamental flaws, but due to oversight or approximation.
Gregory Mankiw further illustrates how the new Keynesian macroeconomic principles are gaining wider acceptance today. In a world economy dominated by powerful multi-national corporations, the theory of imperfect competition requires special attention. In Mankiw’s own words,
“A large part of new Keynesian economics is trying to explain why firms set and adjust prices over time in the way they do. Firms in a perfectly competitive environment don’t have any choice over what their prices are going to be. Competitive firms are price takers. If you want to even talk about firms setting prices you have to talk about firms that have some ability to do so, and those are firms that have some market power: they are imperfectly competitive. So I think imperfect competition is central to thinking about price setting and therefore central to new Keynesian economics.” (Mcdermott, 1993)
A little recognized aspect of Keynesian economics is its congruence with Marxism. The failure of the Soviet Union cannot be a statement on Marxism; it is anything but. In a recent poll conducted by BBC Radio, Marx was voted as the most important intellectual of the modern era. This is an astounding fact given the anti-communist propaganda in Western European nations and the participants were primarily from bourgeoisie British demography. This makes results are thus very convincing and decisive. The aspect of Marx in Keynes’ work is discussed below (Aoki, 2001).