Where are the critics of Keynes?

I put the following post up at the History of Economics list the other day because it exactly reflects a problem I am having.

I am doing some work on Keynesian economics in the period following the Global Financial Crisis. It just may be that I do not know where to look but I am having trouble finding articles of any kind criticising Keynesian models and the theory behind public sector spending and the stimulus. Can anyone help?

And as an additional query, although Mises, Hayek and Friedman are seen as “anti-Keynesian” whatever that may mean, again there seems to be a dearth of articles by them critical of Keynesian theory as it relates to public sector spending and the stimulus. So again, can anyone help?

Responses both online and offline would be greatly appreciated.

There are other economic traditions, from Austrian to Marxist, but each keeps to itself without bothering to actually criticise explicitly what they think is wrong with Keynesian analysis. And for many of the traditions, public spending in recessions is the least of their aims in changing the nature of policy based on the theories proposed. And while there have been a number of useful suggestions that have been sent to me offline as well as discussed online, there is no great cache of anti-Keynesian material anywhere that anyone has been able to unearth.

It would be one thing if the stimulus had been a no-questions-asked success, or even a mid-level so-so success, but instead it has been the most abject failure with every economy struggling to untrack from the debt and deficits the stimulus has caused. So where are the critics?

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57 Responses to Where are the critics of Keynes?

  1. stackja

    So where are the critics? The Keynesians can never be criticised!

  2. .

    Keynesian theory presumes that government spending or consumption of temporary income generates a better ROI than private investment.

    This has been shown to be empirically untrue.

    This sinks the whole ponzi scheme.

  3. Rabz

    There is no such concept as “Marxist Economics” just as there is no such creature as a “Marxist Intellectual”.

    :x

  4. Empire Strikes Back

    So where are the critics?

    Hidden in dark cupboards, shaking like leaves on a tree. Until such time as a government appoints a classicist as Treasury Secretary, there they shall remain.

  5. Yohan

    You have to admire the Keynsian’s, their system is bulletproof from all criticism.
    If there is no recovery, the fault lies in governments not printing and spending enough, the stimulus was not big enough.

    If there is a recovery, they claim credit for it, never considering the recovery may have been in spite of the stimulus, not because of it.

  6. pete m

    It is just you, Steve. Google scholar your name and walaa.

  7. Driftforge

    So where are the critics?

    For the same reason, hiding with the Climate deniers.

  8. danger mouse

    Steve, you’ll have the last laugh… if you are still around by then.

  9. Greg Byrne

    Steve, you gotta be joking about the Austrians not attacking Keynesianism. How about these: The Failure of the New Economics by Henry Hazlit, Dissent on Keynes edited by Mark Skousen, and Where Keynes Went Wrong by Hunter Lewis. Anyhow, Austrianism in itself is anti-Keynesian. I suggest you study it.

  10. Grigory M

    This article is not a criticism of Keynesian economics.

  11. Scott

    Zerohedge. Follow the links. Read the entrails.

  12. .

    Ben Eltham

    Hilarious how he judges the provenance and performance of an economics lecturer when he has absolutely no credibility or nous to make such a judgment and not be ridiculed for doing so.

  13. Yohan

    This article is not a criticism of Keynesian economics.

    By Ben Eltham. Claims Say’s Law has been outdated for 70 years. And that we twist ourselves into knots by reading Mises. Hayek and Freidman.

    Ben Eltham. A name to avoid.

  14. Empire Strikes Back

    But if you feel like understanding the knots that academic economics has tied itself in by its adherence to the outdated ideas of thinkers such as Mises, Hayek and Friedman and the ideas of the so-called “Real Business Cycle”, try John Quiggin’s Zombie Economics or Skidelsky’s Keynes: The Return of the Master.

    Perhaps Eltham would care to share with us which Australian schools are adhering to Mises, Hayek and Friedman? He really ought to have acknowledged Paul Montgomery for advising him on the article too. He is clearly espousing wrongonomics.

  15. Toiling Mass

    Yohan,

    Ben Eltham or Ben Elton?

  16. Rabz

    Ben Eltham.

    Ah yes, mirror boy. He comments whines here occasionally, usually when someone makes the entirely sensible observation that he is among other things, a drooling cretin.

  17. thefrollickingmole

    I think its pretty simple, Keynes will reign supreme until a government employs someone to tell them they cant influence the economy as much as they think, and government is a powerful destroyer of wealth, not a creator.

    That wont happen, governments are in general) too egotistical to admit they are wrong.
    So government posts will go to Keynesian, unis will teach it because its the only path to a job etc..

    Oe hand washes the other, Keynesian theory allowing the government fiscal cover for irresponsible spending, and that same government funding Keynesian uni programs because it tells them wht they want to hear.

  18. Milton Von Smith

    Steve, you should try anything by Robert Barro or Stephen Williamson.

    For example, Barro’s recent textbook only mentions aggregate demand once.

    And Williamson presents a series of simple macro models in which there is no such thing as aggregate demand in the usual sense of the term.

  19. .

    Hilarious how Eltham trashes the RBC which is somewhat underpinned by Kydland and Prescott’s nobel prize winning work.

  20. sdfc

    Given monetary policy has been relatively ineffective during the crisis of the past seven years just what policies should be implemented to combat a deflationary environment?

  21. JC

    Given monetary policy has been relatively ineffective during the crisis of the past seven years

    No it wasn’t. It was extremely effective. It caused the fucking crash.

  22. sdfc

    It caused the crash by being too loose earlier in the decade. Yes I agree.

  23. JC

    It caused the crash by being too loose earlier in the decade. Yes I agree.

    Where’s the evidence they were too loose? The yield curve wasn’t showing that. The inflation rate was well behaved. They fucked up big time because they read a change in relative prices as being inflation when in fact it was a price signal from fast paced demand from the developing world.

  24. sdfc

    Yes the flat and inverted yield curve. Between the US huge current account deficit, the big dollar’s status as a de facto reserve currency and the currency manipulators out there it’s not your smoking gun.

    Given household debt rose from around 70% to nearly 100% of GDP over the period it is fairly safe to say policy was too loose.

  25. Tel

    Given monetary policy has been relatively ineffective during the crisis of the past seven years just what policies should be implemented to combat a deflationary environment?

    Well, we could get onto the long argument about why deflation requires something to combat it… but ignoring that, monetary policy in the USA has been very successful at keeping nominal prices up. Even wages in the US have been growing on a nominal basis (read the stats, they are easy enough to find). If you search hard, you can find some years for some industries where nominal wages went down, but the overall trend is clearly up.

    Factoring in food, transport, rent, electricity, and pretty much any household staple you care to name, prices in the US are going up. There is no deflation.

    That said, the US economy is badly struggling, and no amount of QE is going to fix that. The Federal Reserve can tinker with the money supply, that’s all they can do. They can’t fix a badly mismanaged economy.

  26. Tel

    You have to admire the Keynsian’s, their system is bulletproof from all criticism.
    If there is no recovery, the fault lies in governments not printing and spending enough, the stimulus was not big enough.

    If there is a recovery, they claim credit for it, never considering the recovery may have been in spite of the stimulus, not because of it.

    That counter factual is a fundamental problem of all macro economists who claim to be empirical. Unless they can show me a control experiment to compare against, they are bullshitters… they are not empirical, they are just making stuff up. Yes it applies to the Krugmans of this world in spades, but I’m sure it applies to more than just him.

    By the way, didn’t Japan do everything in the Keynesian playbook?
    * Inflation — check
    * Money printing — check
    * Broken windows — earthquake, tsunami, radiation leak — check
    * Wage rises — check

    So why isn’t Japan surging along? Must be the stimulus isn’t big enough.

  27. sdfc

    Tel

    Well, we could get onto the long argument about why deflation requires something to combat it… but ignoring that, monetary policy in the USA has been very successful at keeping nominal prices up. Even wages in the US have been growing on a nominal basis.

    Yeah and the US cash rate has been near zero for the past five years and the Fed is still buying assets to the tune of $55b a month in an effort to push down longer-term rates. Yet NGDP growth is still relatively sluggish. What is your point?

  28. sdfc

    Don’t confuse productivity driven deflation with financial crisis.

  29. Tel

    There are other economic traditions, from Austrian to Marxist, but each keeps to itself without bothering to actually criticise explicitly what they think is wrong with Keynesian analysis.

    You must be kidding me right? Keynesian analysis has been blasted up hill and down dale. Broken window fallacy, nailed by Bastiat.

    http://consultingbyrpm.com/blog/2011/08/correcting-the-keynesians-on-the-broken-window-fallacy.html

  30. sdfc

    The broken window fallacy is a fallacy.

  31. Tel

    Paradox of Thrift, whacked with regularity, still keeps popping up.

    https://mises.org/daily/4193

  32. Tel

    The broken window fallacy is a fallacy.

    Tell that to Krugman and his “expansionary” earthquake. No one else can make him listen.

  33. Tel

    Why Keynesian Stimulus cannot work as a long term policy (not the first explanation, but far, won’t be the last):

    http://mises.org/preview/6680/AntiLogic-and-the-Keynesian-Stimulus

  34. sdfc

    When households and firms curtail consumption and investment expenditure and pay down debt, the effect is deflationary. Mises and co ignore the debt accumulated during a monetary inflation (though not Rothbard from what I remember, he reckoned tough luck apparently).

    When income falls the real value of debt outstanding rises, leading to declining disposable income, lower expenditure and depression.

    The deflationary course is a recipe for disaster.

    Krugman has no idea how the monetary system works, fiscal policy has monetary effects.

    Central bank funded debt forgiveness is what we need. CBs need to inject money directly into private sector bank accounts.

  35. Tel

    Central bank funded debt forgiveness is what we need. CBs need to inject money directly into private sector bank accounts.

    That’s Steve Keen and his “Sixpack Inflationist” theory of solving a recession. It’s still wrong, merely creates a different shaped Cantillon effect. Debt forgiveness is merely another way of saying that people should not bother to keep promises.

    http://www.youtube.com/watch?v=rGkmgnprrIU&feature=share&mid=54195

  36. sdfc

    No central banks pumping money directly into private sector bank accounts virtually eliminates the Cantillion effect. You on the other hand favour an amplified Cantillion effect with a relatively slow transmission mechanism by injecting the money into a narrow sector of the economy.

    Deflation is disastrous for a high debt economy, history tells us so.

  37. .

    Deflation is disastrous for a high debt economy, history tells us so.

    …and so is inflation.

  38. .

    Just stop bullshitting, sdfc.

    High debt, high inflation countries have their currency, credit rating and banking system collapse, apart from economic catastrophe and government resignation, if not violent revolution.

  39. Grigory M

    Deflation is disastrous for a high debt economy, history tells us so.

    …and so is inflation.

    But stagflation is worse.

  40. Rabz

    FFS, are you still fighting over this worthless ground?

    :x

  41. Grigory M

    Nah, Rabz – I threw a curve ball in at lunch time, but not much eventuated from it (except for a few people remarking on the obvious talents of Ben Eltham). It’s continued to stumble along in boring fashion, so I thought I’d give Dot and sdfc a hand with the ‘flation theory. Might be better to just let the whole thing pass away in its sleep.

  42. Andrew

    So why isn’t Japan surging along? Must be the stimulus isn’t big enough.

    That’s pretty much the position of many. And that doing nothing would have been worse. Although given they’re an exporting economy, I’m not sure how or why. Or that simply having a Great Depression in 1990 from bank failures wouldn’t have been mathematically better than blowing 200% of GDP.

    Anyhow tradingeconomics.com has the US deficit going from 8.5% of GDP to 4.1% of GDP (i.e. better than what the Goose has left us all by himself, with no GFC or bank failures here) in a single year. And the US economy has grown at the same trend as when the Kenyan was hurling stimulus at every pet thought bubble of the Left.

    Perhaps the Keynesians could write a book about 2013? I’d like to see the analysis of how the US was just about to have a spike of 7.5% real growth to match China and eliminate unemployment until that nasty Tea666 Party spoiled it with austerity. Perhaps Stigman or Kruglitz could take up the project?

  43. Tel

    Gosh sfdc, that money pumping inflation is just magic for what it’s done to Japan’s economy. Really hooning along with the Abenomics.

  44. Tel

    Deflation is disastrous for a high debt economy, history tells us so.

    Any particular part of history?

  45. Tel

    Perhaps the Keynesians could write a book about 2013? I’d like to see the analysis of how the US was just about to have a spike of 7.5% real growth to match China and eliminate unemployment until that nasty Tea666 Party spoiled it with austerity. Perhaps Stigman or Kruglitz could take up the project?

    Krugman is trying to build a failure narrative around lack of government spending “stimulus”. There are plenty of problems in the US right now, and their deficit is not exactly small either, so clearly the Democrats feel the need to find people to blame things on (anyone other than themselves).

    http://krugman.blogs.nytimes.com/2014/03/23/the-crime-of-2010/

    There’s no significant correlation between US employment participation and US government spending by the way, but that won’t stop Krugman.

  46. .

    Deflation is disastrous for a high debt economy, history tells us so.

    Yet we are required to specifically name countries to assert the opposite. Please name a few, sdfc.

  47. .

    I thought I’d give Dot and sdfc a hand with the ‘flation theory

    You couldn’t possibly help anyone.

  48. Yohan

    Roger Garrison is a Macro based economist and gives an excellent presentation of the Austrian Business Cycle Theory that is chart and graphically based.

    It shows how the Keynesian aggregate demand theory is a fallacy and following it will distort the capital structure of the economy.

  49. Tel

    Grigory M, your quick comment on Stagflation would have been more useful if you had gone to the trouble to link to a well argued article explaining how Stagflation is empirical evidence that Keynesian theory is junk.

    http://mises.org/daily/1181

    The rise in housing prices is astonishing in the United States, United Kingdom and Spain. A bubble is forming here too, that will burst when long term interest rates rise or when the unemployment rate is so high that it impairs household marketability. The bursting of the bubble will have a negative impact on consumption (because of the wealth effect) and on bank solubility (which could lead to a credit crunch).

    Another bubble is forming in the public bond markets. Since the equity market burst in 2000, dealers and banks have been using their liquidity to buy assets that offer quasi-certain performance. The price of US 10 year bonds has been soaring.

    The figures do not reveal strong increases in the prices of manufactured consumer goods in countries where pricing power is weak, in particular because of the slow down in wages and the increase of unemployment. In these countries, the adjustment is carried out by a contraction of corporate profits. On the other hand, the inflationary tensions have appeared in services, in particular in Europe where this sector is not very competitive. The effects of monetary inflation can be hidden by the progression of productivity.

    That’s way ahead of its time for 2003, which was when everyone was worrying about terrorists and war in the Middle East, and totally ignoring bubbles.

    I think the author is right, stagflation seems to be on the cards for Europe, the USA and Japan. The ECB is gradually giving up on playing by any rules, and Yellen cannot possibly say no when election pork spending is required. Japan is heading down that way all by itself.

  50. .

    sdfc
    #1261569, posted on April 11, 2014 at 8:33 pm
    The broken window fallacy is a fallacy.

    Hand back your degree. NOW.

  51. Grigory M

    Grigory M, your quick comment on Stagflation would have been more useful

    Tel – it was useful enough. It prompted your comment and the worthwhile link that you provided.

  52. 2dogs

    There is one criticism of Keynes that needs more airtime: he was a significant cause of World War II.

    After the Treaty of Versailles, he started making the fallacious argument that it was unduly harsh on the Germans; particularly in his 1919 book, The Economic Consequences of The Peace.

    This argument, created primarily by Keynes, became widely accepted in Germany and created an unwarranted sense of grievance and entitlement in the German people. Once that sense of grievance was firmly in place, it was only a matter of time before some German politician exploited it. I’ll stop now, so as to avoid invoking Godwin’s law, but you know the rest.

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