CATO Unbound searches for the real Keynes

The latest issue of CATO Unbound – Will the Real John Maynard Keynes Please Stand Up? – is a particularly interesting one. In the same time it could not have been more timely.
“Much debate about economic policy today can be described as taking place between Keynesians and anti-Keynesians.

The latter is made up of an uneasy coalition of Austrians and Chicago-inspired monetarists. The former looks to John Maynard Keynes, who, in his landmark book The General Theory of Employment, Interest, and Money, argued that developed economies were prone to “liquidity traps” — in which monetary policy becomes exhausted, and governments must resort to deficit spending to stimulate the economy.

Given such a drastic diagnosis and prescription, a close examination of Keynes’ own writings is clearly in order. Can Keynesian liquidity traps happen? Keynes himself admitted he had never seen one, although his model predicted them. Well, we might ask, is his model plausible? And does it describe the Great Recession? And if so, will deficit spending help?

Making the case against these claims is this month’s lead essayist, Tim Congdon, often described as the United Kingdom’s leading monetarist. In a close reading of The General Theory, Congdon finds that many of the simplifying assumptions that Keynes made in presenting his model are in fact fatal to the model itself. Moreover, Keynes’ later followers, notably Paul Krugman, are describing a very different phenomenon when they talk about being in a liquidity trap. “


2 thoughts on “CATO Unbound searches for the real Keynes

    1. It is amazing how many interpretations of Keynes’ work are out there. To me, he was mostly a policy maker that was trying to make economics justify his policies. That is why it was so simple for people to abuse his view of the economy. This is also the reason why so many from the left were able to abuse his interpretation of the economy.

      To be honest I want to move beyond dead economist and their interpretations. I would rather look at the world around me and see what makes it tick and try to make my own view of how the economy works. Also, I am biased here because I like to work with data.

      There are some “truths” out there like long periods of cheap money will get you in trouble. However, in today’s world is paramount to know when, how you will get in trouble because of easy money.
      The same thing about sudden withdraw of cash from the economy. We know it is bad but do not how and why it is bad.

      In my world economies move along a development path and then there are positive and negative shocks. Some endogenous, some exogenous. IT all depends in the end on how we respond to the shocks.
      Anyway, I like reading about those guys but also I want to develop my own ideas.

      Thanks for the link.

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