Economics in Crisis: Severe and Logical Contradictions of Classical, Keynesian, and Popular Trade Models.

The paper examines three popular models that form the foundation of modern economics. The author concludes that two of the three, the classical and the Keynesian, are seriously deficient in logic, whereas the third, dealing with gains from trade, is partially lacking in logic. Classical and neo-Keynesian approaches require desired investment to expand during recessions, whereas the trade model requires real GDP to rise without any rise in employment, capital stock, or technology. The paper offers an alternative macro framework that is free from the limitations of conventional models. Money is either neutral or non-neutral, depending on whether the economy is operating below or at full capacity. Wages are strictly determined in the labor market, yet employment is influenced by aggregate demand. The alternative model thus combines the attractive features of classical and Keynesian frameworks. Copyright 2002 by Blackwell Publishing Ltd.