The pandemic exposes the shortcomings in the New Keynesian model, according to J.W. Mason, an assistant professor of economics at City University of New York. The real takeaway from Keynes is that pay cuts only drive the economy further from, not closer to, full employment.
“The source of unemployment in a crisis like this is a lack of aggregate demand,” he said. “Pay cuts are only going to make that worse.”
This article was provided by Bloomberg News.