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 12: Move over Keynes: replacing Keynesianism with a better model

Mark Skousen

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


Saving, investing, and capital formation are the principal ingredients of economic growth. Countries with the highest growth rates are those that encourage saving and investing. Such investing in turn results in better consumer products at lower prices. They do not seek to artificially promote consumption at the expense of saving. Stimulating the economy through excessive consumption or wasteful government programs may provide artificial recovery in the short run, but cannot lead to genuine prosperity in the long run.An emphasis on supply-side economics will do a far better job than Keynesianism to encourage sound capital investment and higher living standards.

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