Sunday, December 1, 2024

Horse's Mouth v. Horse's Ass

Keynes, in chapter 23 of The General Theory of Employment, Interest and Money (1936):

When a country is growing in wealth somewhat rapidly, the further progress of this happy state of affairs is liable to be interrupted, in conditions of laissez-faire, by the insufficiency of the inducements to new investment. Given the social and political environment and the national characteristics which determine the propensity to consume, the well-being of a progressive state essentially depends, for the reasons we have already explained, on the sufficiency of such inducements.

 

Joint Economic Committee Republicans, in "Taxes and Long-Term Economic Growth" (1997):

Writing in the midst of the Great Depression, Keynes saw the major problem of economics as excessive supply. The thesis of his work is that the capitalist system would periodically suffer depressions because businesses and farms would produce more goods than consumers wanted. However, Keynes offered a solution to these periodic crises. When businesses were excessive in their production, the government could provide the extra demand to handle the surpluses by increasing spending through higher budget deficits.

1 comment:

The Arthurian said...

From "Growth Theory and After" (1988) by Robert M.Solow, page 312:

The most interesting case to consider is one where real wage and rate of interest are stuck at levels that lead to excess supply of labor and goods (saving greater than investment ex ante). This is the sort of configuration we have come to call "Keynesian."

To my ear it sounds like Solow was not comfortable applying the term "Keynesian" to that interesting case.

If we say that the J-F-Keynesians of the early 1960s (as presented in this classic article from Time Magazine) were not Keynesian, and the "New Keynesians" are not Keynesian, we are on the right track. Surely the Joint Economic Committee paper of 1997 also misunderstood and misrepresented Keynes.

Yet somehow it is Keynes who has taken most of the blame for all that has gone wrong in the post-WWII economy.