I agree with Brad and Roger in their response to Steve. Steve wants to  
reject the entire Keynesian paradigm/research programme in favor of  
its classical predecessor. Without denigrating the seminal  
achievements of Keynes's classical and neoclassical forebears (and  
those achievements were phenomenal indeed), I don't understand why one  
would want to jettison the entire Keynesian framework which from the  
late 1930s up to at least the 1980s gave us perhaps the most fecund  
and useful analytical/ empirical schema that ever existed in  
economics. Why throw out the macro work of economists such as  
Samuelson, Solow, Tobin, Lerner, Modigliani, Patinkin, Hicks, and many  
others? Economics improves by building upon the work of earlier  
researchers. To rule out the five-decade-long Keynesian research  
paradigm as if it never existed makes no sense to me.

The popular writings of Nobel laureate Paul Krugman are a good  
antidote to Steve. Contrary to Steve, Krugman emphasizes that the old- 
fashioned Keynesian model, as embodied, say, in Paul Samuelson's  
principles textbook, is as relevant today as it was in the 1930s, and  
in fact is the best model for analyzing the financial crisis and its  
recessionary aftermath. And contrary to Steve, who contends that  
Keynesian stimulative policies are bankrupt and useless, Krugman notes  
that recent Keynesian fiscal and monetary stimuli, though much too  
small in magnitude to restore us to our 2007 full employment nominal  
GDP path, at least kept the 2008-9 downturn from becoming as deep as  
the 1930s great depression. That's a strong indication of the power of  
Keynesian economics and Keynesian policies, as well as their potential  
to boost social welfare, contrary to Steve's claims.
---Tom Humphrey
On Nov 10, 2011, at 3:24 PM, Brad Bateman wrote:

> It is difficult to respond to someone like Steve Kates who is rude  
> about your ideas ( calling them "rancid") and relentlessly insistent  
> that they, and they alone, know the truth and that you will address  
> their work immediately and in the detail they demand. Prudence  
> suggests walking away from the opportunity.
>
> Before I say anything else, however, I would like to say that some  
> of the best work done in the history of economic thought comes out  
> of Australia. I have been engaged all my professional life with  
> Australian historians of economic thought. While I was in my long  
> cycle of service on the HES executive committee, I was a signatory  
> to the letter of protest sent to the research body that tried to  
> diminish the status of the history of economic thought in Australian  
> research assessments. Thus, I refuse to take Kates' comments about  
> his citizenship seriously. Frankly, they have no place in a post on  
> this list.
>
> I suspect that I should say very little else to Kates' demands. In  
> his critique of our op-ed piece, he continually returns to his  
> understanding of Keynes's ideas and insists that anything we have  
> said about Keynes must be interpreted through the frame of his  
> understanding of Keynes. I find Kates' understanding to consist  
> largely of caricature. It is a straw man and I refuse to argue with  
> him about his straw man. I have written for many years trying to  
> explain why the figure that Kates is so intent on beating in public  
> is a straw man. I have also argued against several other  
> interpretations that I believe are inaccurate. As best as I can  
> tell, Kates has ignored in his own work everything I have written on  
> Keynes's policy ideas; but now he demands that I address his work  
> point by point. There is an odd asymmetry in his demand.
>
> Brad Bateman
>
>
> On 11/10/2011 3:23 AM, Steve Kates wrote:
>> It is interesting to see just how relentlessly Roger Backhouse and  
>> Brad
>> Bateman choose to ignore what I wrote. That was the reason I  
>> thought I
>> would bring Allyn Young into the conversation since I understand
>> perfectly well that some faraway economist living in the antipodes  
>> would
>> have no standing in such discussions but I thought Allyn might.
>> Nevertheless, I do wish to impress upon them once again that what I  
>> am
>> writing about is a direct response to the issues they raised. And  
>> since
>> the only compass in which these issues can be properly discussed is  
>> the
>> evolution of economic theory over the past  hundred years, in every  
>> way
>> this is a subject matter for this site.
>>
>> Going back to the original NYT article, let me take the final  
>> sentence
>> as the core point Backhouse and Bateman wished to make. What they  
>> wrote
>> was: “If economists want to help create a better world, they first
>> have to ask, and try to answer, the hard questions that can shape a  
>> new
>> vision of capitalism’s potential.” To do this, they argued, economic
>> theory should include a major recognition of government and its  
>> role. To
>> emphasise how important this point is, they criticised Hayek and
>> Friedman for ignoring the important contributions of government,
>> writing:
>>
>> “In the 20th century, the main challenge to Keynes’s vision came
>> from economists like Friedrich Hayek and Milton Friedman, who  
>> envisioned
>> an ideal economy involving isolated individuals bargaining with one
>> another in free markets. Government, they contended, usually messes
>> things up. Overtaking a Keynesianism that many found inadequate to  
>> the
>> task of tackling the stagflation of the 1970s, this vision fueled
>> neoliberal and free-market conservative agendas of governments around
>> the world. That vision has in turn been undermined by the current
>> crisis.”
>>
>> Well, what I am trying to tell them is that I have attempted in my  
>> book
>> on “Free Market Economics” to do exactly what they have argued needs
>> to be done. It is not perfect but what is?  And  because of the  
>> book's
>> hostility to Keynes and what he stands for, I fear that if they  
>> read it
>> they would unlikely find much in it that would give them pleasure.  
>> But
>> (a) it is obviously about capitalism (although the word does not  
>> appear
>> anywhere in the book) and (b) it provides a vision of the world in  
>> which
>> economic actions are of necessity buried inside a political  
>> structure.
>> Don’t believe it? Here are the opening three paragraphs of the book:
>>
>> “This is a book about the market economy.
>>
>> “A market economy is one in which overwhelmingly the largest part of
>> economic activity is organised by private individuals, entrepreneurs,
>> for personal profit. Such entrepreneurs are private citizens not
>> government employees. They make decisions for themselves on what to
>> produce, who to hire, what inputs to buy, which machinery to  
>> install and
>> what prices to charge.
>>
>> “There are, of course, in every nation state legislative barriers put
>> in place by governments which limit every one of these decisions. No
>> market is or ever has been even remotely laissez-faire.  
>> Entrepreneurial
>> decisions are circumscribed by the laws, rules and regulations that
>> surround each and every such decision.”
>>
>> My aim in writing the book was to explain to governments, and to  
>> their
>> citizens, how an economy can be run so that prosperity for the  
>> largest
>> number is the result. This is not a book about how governments  
>> should be
>> kept away from economic interactions. This is a book that embeds  
>> within
>> the text the very necessity for governments to intervene to make free
>> markets work. The point that I try to make is that since  
>> governments not
>> only are going to intervene but must, they should do so in a way that
>> actually does some good.
>>
>> But Backhouse and Bateman do not just say we need a new vision and
>> leave it at that. In their article and subsequent post, they are
>> promoting a book with the title, “Capitalist Revolutionary: John
>> Maynard Keynes”. In their view, it is in Keynes that we ought to find
>> that vision. Well the point I wish to make is that it is precisely in
>> Keynes that we will not find that vision, and that if we economists  
>> had
>> any sense we would abandon Keynesian theory and policy root and  
>> branch.
>> To draw some inference from Keynes that capitalism is in constant  
>> need
>> of reform is about as vacuous a statement as I can imagine. The  
>> need for
>> institutional adjustment to the changing nature of the world is  
>> hardly
>> some great insight.
>>
>> The Keynesian policy vision has created a global nightmare both
>> politically and economically, a nightmare whose end is nowhere in  
>> sight.
>> There may be an old guard that wishes to cling to such rancid and
>> outdated ideas but by now it ought to be obvious beyond argument that
>> Keynesian policies do not work. There is not a single economy in the
>> entire world that is safe from the ravages that the stimulus has  
>> caused.
>> By all means, let us find a new vision, but for heaven sake, the last
>> place we should be looking for that vision is in the works of John
>> Maynard Keynes.
>>
>>
>> Dr Steven Kates
>> School of Economics, Finance
>>     and Marketing
>> RMIT University
>> Level 12 / 239 Bourke Street
>> Melbourne Vic 3000
>>
>> Phone: (03) 9925 5878
>> Mobile: 042 7297 529