The end of Keynes – and this time someone else is saying it

There’s a lovely article up on National Review Online titled, “The End of Keynes: the debt deal is the final nail in the coffin” and written by NR‘s editor, Rich Lowry. But what is particularly interesting is who is actually acknowledging the demise of Keynesian economics but none other than one of the leading Democrats in the American Senate :

Sen. Dick Durbin, the liberal lion from Illinois, pronounces the debt deal ‘the final interment of John Maynard Keynes.’

The burial ceremony should be a nice, simple one after the violence done to the aged economist by the failure of the broad Obama stimulus program. The administration’s serial overpromising in his name did more to discredit Keynes than a century’s worth of broadsides by his intellectual enemies.

It is what I have been saying for a while now. And what I have also been saying is that Keynesian economics is dead everywhere except for just about every economics department in the world. Pick up just about any introductory text, and most advanced texts as well, and they are filled with Keynesian aggregate demand. There is absolutely nothing else. I suspect there would be very few economists who would understand how to interpret economic events without thinking in those terms. That is all they have been taught.

But just as we are seeing the meltdown of our economies under the strain of Keynesian theory, so shall we also see the meltdown of economic theory under the strain of economic events. Eventually there will have to be a return to Say’s Law. Eventually economists will have to again begin to teach that only value adding expenditure creates demand and only private businesses under competitive conditions can deliver value adding productive activity.

To go back to Rich Lowry and NR:

Nearly three years into the Obama administration, the unemployment rate is more than 9 percent, a grassroots movement devoted to cutting government has the upper hand in the House of Representatives, and the debt of the United States could well be downgraded by Standard and Poor’s. If Durbin thought that in these circumstances Keynes was heading anywhere other than a pine box, he hasn’t been paying attention.

But this is more than just the end of Keynes, it is also the end of socialism. It is the end of active government intervention. Not immediately, of course, but over time as the message gets out. The welfare state will never disappear but socialism will.

What we now have is the return to economic activity organised around the entrepreneur. We invented the capitalist free market system in the West and then, as others cottoned on, we abandoned it ourselves for various forms of state direction and control. But if even Democrat Senators can see the writing on the wall there is hope for us yet. The return of the entrepreneur is where the world’s economies must head next and eventually, in time, the economic textbooks will catch up.

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6 Responses to The end of Keynes – and this time someone else is saying it

  1. JC

    Steve

    And there is a silver lining in Europe with all this mess. Greece is slated to privatize $50 billion of government assets by 2015. The same will also apply to the rest of the PIIGS too.

  2. Driftforge

    Eventually economists will have to again begin to teach that … only private businesses under competitive conditions can deliver value adding productive activity.

    This is an illogical statement. I suspect that the statement that private businesses under competitive conditions are more likely to deliver value added productive activity is true. But to suggest that it is impossible for a) a government to value add or even more so b) a private business under monopoly conditions is ludicrous.

  3. boy on a bike

    Having worked in government, the best one can hope for is that the value destroying aspects of government activities can be minimised.

    It’s not impossible for a government agency to add value. However, if you gave the same level of inputs to the private sector and a government agency, it is almost certain that the government agency would deliver a lot less value add than the private sector. That is a huge opportunity cost.

  4. m0nty

    Steve, let’s say that the US economy double dips into recession as a result of these cuts to public spending. What would be your formulation to minimise the effects of the Tea Party Recession? Even more spending cuts? Even more tax cuts, to blow the public budget out even further? How would you fix it?

  5. Pedro

    I’m sure Steve doesn’t disagree that AD shocks can trigger economic problems, the question is where the solutions are to be found.

    I think stimulus, preferably monetary, is a very good idea following the AD shock so that there is a cushion, but I don’t think that the stimulus is the key to a return to growth.

    Monty, I know you’re just a stirrer, but ask yourself this. At what point can govt stimulus spending be safely removed.

  6. Peter Patton

    Greece is slated to privatize $50 billion of government assets by 2015. The same will also apply to the rest of the PIIGS too.

    Didn’t P.Kwigg’n write a book assuring us all that neoliberalism and its horrid privatizations were now assyredly over? 😉

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