I don't know where you are getting your ideas about Keynesian economics and wage policy, but they are almost completely the opposite of what Keynesians believe.
He also argued that to boost employment, real wages had to go down: Nominal wages would have to fall more than prices. However, doing so would reduce consumer demand, so that the aggregate demand for goods would drop. This would in turn reduce business sales revenues and expected profits. Investment in new plants and equipment—perhaps already discouraged by previous excesses—would then become more risky, less likely. Instead of raising business expectations, wage cuts could make matters much worse.
Further, if wages and prices were falling, people would start to expect them to fall. This could make the economy spiral downward as those who had money would simply wait as falling prices made it more valuable—rather than spending. As Irving Fisher argued in 1933, in his Debt-Deflation Theory of Great Depressions, deflation (falling prices) can make a depression deeper as falling prices and wages made pre-existing nominal debts more valuable in real terms. [1]
To summarise, Keynesians generally believe that decreasing wages deceases aggregate demand, which discourages growth.
The general Keynesian to high unemployment during a recession is to increase government stimulus to increase aggregate demand. That approach is problematic in Europe at the moment, as the infographic illustrates.
Um, you quote a passage declaring that according to Keynes, real wages need to go down to boost employment. He says this is difficult because nominal wages are sticky.
How does that differ from what I said?
Note that I wasn't advocating a deflationary spiral, I was advocating a stimulative wage cut while allowing price levels to rise.
It differs because Keynesians also follow the rest of that quote: . However, doing so would reduce consumer demand, so that the aggregate demand for goods would drop. This would in turn reduce business sales revenues and expected profits. Investment in new plants and equipment—perhaps already discouraged by previous excesses—would then become more risky, less likely. Instead of raising business expectations, wage cuts could make matters much worse.
Note the "wage cuts could make matters much worse".
I'm unclear if you think that a "stimulative wage cut" (!!) is Keynesian or not. To be clear: it is not - under no circumstances would a Keynesian think a wage cut is stimulative.
What you are describing is not part of the standard Keynesian theory. The hypothetical death spiral does not follow from the math. If you disagree, could you show how it occurs?
Further, the decrease in real wages caused by stimulus (whether via a nominal cut or inflation) causes AD to increase (and GDP as well), since it puts people back to work. At least, that's what the math says.
I do realize that political pundits posing as economists (including those with Nobel prizes) often ignore the math when they don't like where it leads...
You say "the math says" like it is a math homework formula.
I assume we both know economics isn't like that - it is about statistics, demand curves and velocity of changes across the economy. Sure, an increase in employment increases aggregate demand. But a decrease in wages also decreases aggregate demand.
He also argued that to boost employment, real wages had to go down: Nominal wages would have to fall more than prices. However, doing so would reduce consumer demand, so that the aggregate demand for goods would drop. This would in turn reduce business sales revenues and expected profits. Investment in new plants and equipment—perhaps already discouraged by previous excesses—would then become more risky, less likely. Instead of raising business expectations, wage cuts could make matters much worse.
Further, if wages and prices were falling, people would start to expect them to fall. This could make the economy spiral downward as those who had money would simply wait as falling prices made it more valuable—rather than spending. As Irving Fisher argued in 1933, in his Debt-Deflation Theory of Great Depressions, deflation (falling prices) can make a depression deeper as falling prices and wages made pre-existing nominal debts more valuable in real terms. [1]
To summarise, Keynesians generally believe that decreasing wages deceases aggregate demand, which discourages growth.
The general Keynesian to high unemployment during a recession is to increase government stimulus to increase aggregate demand. That approach is problematic in Europe at the moment, as the infographic illustrates.
[1] http://en.wikipedia.org/wiki/Keynesian_economics#Wages_and_s...