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Revisiting KeynesEconomic Possibilities for Our Grandchildren$
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Lorenzo Pecchi and Gustavo Piga

Print publication date: 2008

Print ISBN-13: 9780262162494

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262162494.001.0001

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Why Keynes Underestimated Consumption and Overestimated Leisure for the Long Run

Why Keynes Underestimated Consumption and Overestimated Leisure for the Long Run

(p.179) 13 Why Keynes Underestimated Consumption and Overestimated Leisure for the Long Run
Revisiting Keynes

Gary S. Becker

Luis Rayo

The MIT Press

This chapter underscores a number of problems in Keynes’s discussion of the long-term economic future of the Western world. What is primarily discussed here is his neglect of the positive implications for hours worked of the substitution effect induced by higher earnings, the difference between working habits of the rich English gentlemen of his time and that of Americans and many other rich individuals working in different countries, the nature of the utility function that would be motivating most consumer behavior, his ignoring the possibility of future inventions of revolutionary goods and services in great demand by consumers, the nontrivial economic challenges involved in the allocation of time, and the economic advance of the vast majority of the world’s population who then lived in very poor countries. The discussion of these issues is done in light of developments in economic analysis since Keynes wrote his essay almost eighty years ago.

Keywords:   long-term economic future, Western world, economic analysis, substitution effect, utility function, consumer behavior, revolutionary goods, allocation of time, economic advance

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