On eclecticism, or we are (almost) all neo-classical neo-Keynesians now

Summary

Mainstream economics deals with allocation and income distribution in neoclassical fashion, while the macro-economics of underspending and overspending are handled in a neo-Keynesian spirit. The question is whether this type of eclectic synthesis can be reproached for being inconsistent. The author tries to answer this question for a situation of low investment, low profits, low employment, unused capacity and a wage-price spiral. He argues that, though some elements of the neo-classical allocation and distribution theory are lost, the main neo-classical body can cope with situations of underspending. However, not without limits. Outside a ‘corridor’ á la Leijonhufvud, situations may arise where the eclectic synthesis may fail. The author enumerates ten factors determining the boundaries of such a corridor.