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.

Chapter 9: What’s wrong with Keynesian economists?

Arthur B. Laffer

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


The point that baffles me even more than the failures of Keynesian economic policies is the even greater failure of Keynesian economists’ common sense.Just how can highly reputed economists with their long pedigrees get everything so wrong?The evidence for Keynesian economic prescriptions in times of crisis harkens back to an old adage: “Whenever people make decisions when they are either panicked or drunk, the consequences are rarely attractive.” If you are as convinced as I am of the healing powers of free markets, then the ideal public policies should be: a) a low rate, broad-based flat tax; b) spending restraint; c) sound money; d) free trade; and e) minimal regulations.And, at no time are these healing powers of free markets more important than during periods of crisis.In times of crisis the motto should be “Don’t just stand there, undo something!” History and free markets have our back.

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