Comments on Paul Davidson's 'Full Employment, Open Economy Macroeconomics, and Keynes’ General Theory: Does the Swan Diagram Suffice?'

Abstract

This is a response to a critique by Paul Davidson of our 2013 book Keynes: Useful Economics for the World Economy and related work, where we describe, amongst other things, how the Swan diagram can be used to show how economies can use policy tools to achieve internal and external balance. In his article “Full Employment, Open Economy Macroeconomics, and Keynes’ General Theory: Does the Swan Diagram Suffice?” Davidson rejects our use of the Swan diagram and argues that it distorts Keynes’ own views. We show here why Davidson’s critique is incorrect, inconsistent and ahistorical.

Keywords: Swan Diagram, balance of payments, fiscal policy, neoclassical Synthesis Keynesianism, Post Keynesianism.

JEL Classification: B3, E12, E42, E61, F33, F41