I am truly sorry if Brad Bateman thinks I have been rude about his
ideas. He should try blogging for a while in these here parts and he
will find out what rude really looks like. And he should not take it
personally that I described Keynesian ideas as rancid. My comment was
not directed at either he or Roger Backhouse. Keynesian policies to all
appearances have been a disaster and so my use of the term is for all
applications of modern macroeconomic versions of Keynesian ideas, and
especially in the period since 2009. Until then, there may have been
some justification for thinking these ideas had merit. But since then,
at the very least they should have been moved into some kind of
quarantine pen for intense examination before further use. At a minimum,
they are well past their use by date. I might also note that Roger
Backhouse has had the benefit of hearing my views in person at the
recent UK HET Conference. I therefore am perfectly aware that we are not
in agreement on these matters, but that is the nature of the line of
work we are in. Let me also say that I have been very grateful to him
for his comments on what I have written which have been extremely
helpful. 

As to whether I know “the truth”, I must confess that I do not. But
do we now have container loads of evidence that Keynesian theory may be
deeply and fatally flawed? Yes, we do. And that was the point of my
original and subsequent posting under this thread and in relation to the
thread headed “I=S”. Economic theory ought to be in crisis mode. The
application of C+I+G in real world settings has in my eyes created a
debt and deficit disaster whose five and even ten year outlook has an
open ended downwards potential that is truly terrifying. 

Keynesian economics may be as good as so many continue to tell me. As a
base framework for analysing economies and framing policies, it may be
the best there is. But I don’t think so and I can no longer understand
why anyone else still thinks so, or at least still thinks so with such
great conviction. My aim in writing was to express my own belief that
economic theory ought to be in crisis mode. We should now be thinking
long and hard in a profession-wide attempt to find out what has gone
wrong. The kind of complacency about the Keynesian C+I+G framework does
not sit well with the surrounding economic circumstances that are
inescapable every time you turn on the news. 

Since the GFC and specially since the introduction of the various
stimulus packages which came after, the bookshops around where I live
have seen a succession of publications on Keynes. When I see them, I buy
them and I even read them. I hope to do the same with your book as well.


Since all I have read thus far is your posting and the article from the
NYT, I really cannot say in advance what I will think. But if it is one
more work on what a genius Keynes was and how wonderful it was that he
saved capitalism in the 1930s – speaking as we are of a book that was
published in 1936 when the Great Depression was all but over – then I
predict I will not respond to it well, but I love surprises so who
knows. 

We on this site at this time are not going to come to any kind of
conclusion on the future direction of economic theory. But what I do
hope to do is suggest that, firstly, we as economists should now be
thinking very carefully about the macro models we have so regularly been
teaching and applying. And secondly, that when we are weighing up
possible alternatives, we ought to very carefully re-examine the
theories of the business cycle which were the common possession of the
economics community prior to 1936. 

With these theories of the cycle, the way to hasten recovery was to
find some means to generate increases in value adding supply. Since the
publication of _The General Theory_, we have attempted to generate
recovery through raising aggregate demand, and to do so by spending on
just about anything at all, with no apparent consideration whether what
was produced was value adding or not. 

Keynesian solutions, in my opinion, do not work. I am not alone in
holding this opinion and more are coming to this conclusion every day.
We should therefore be thinking about what might work instead. In my
view, in thinking about these alternatives, we should look at what
classical economists had once said about the causes and cures for
recession in their now discarded theories of the cycle. That is all that
I have been trying to say in my posts but I find it is a message that is
very difficult to get across. 



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