What’s Wrong with Keynesian Economic Theory?

What’s Wrong with Keynesian Economic Theory?

Edited by Steven Kates

Possibly the strangest phenomenon in all of economics is the absence of a long tradition of criticism focused on Keynesian economic theory. Keynesian demand management has been at the centre of some of the worst economic outcomes in history, from the great stagflation of the 1970s to the lost decade and more in Japan following the expenditure program of the 1990s. And once again, following the Global Financial Crisis, it is incontrovertible that no stimulus program in any part of the world has been a success, each one having been abandoned as conditions deteriorated under the weight of public sector spending. This book brings together some of the most vocal critics of Keynesian economics. Each author attempts to explain what is wrong with Keynesian theory in ways that can be understood by those seeking guidance on where to turn for a more accurate explanation of the business cycle and on what to do when recessions occur.

Introduction: what’s wrong with Keynesian economic theory?

Steven Kates

Subjects: economics and finance, austrian economics, history of economic thought, post-keynesian economics, teaching economics


I was in the process of writing an introduction to a book which I like to call my Anti-Keynesian Reader, but whose official title is Keynesian Economic Theory and its Critics. It is a compendium of all of the major critics of Keynesian economics written since the publication of The General Theory in 1936. In writing the introduction to this other volume, it became obvious that no one had ever written an all-encompassing critique of Keynesian economic theory from a classical pre-Keynesian perspective. This was because when the General Theory was published, although there were many classical economists, no one at the time truly understood what the General Theory was about. Now that we do understand what the General Theory is about, there are no classical economists left to explain from a pre-Keynesian perspective what is wrong with Keynesian macro. What else I learned was how few economists there are today who are actively anti-Keynesian. The entire literature since 1936 devoted to explaining what is wrong with Keynesian theory would hardly cover a single library shelf, and this would include both books and articles. Those of us writing critiques of Keynesian economics today are part of a very small cohort of economists.