Marathon Pundit: The death of Keynesianism

Sunday, June 12, 2011

The death of Keynesianism

Yosemite National Park, 2009

The liberal economic hero, John Maynard Keynes, and his theories, wrapped together in the blanket of Keynesian, could be dead once and for all.

Stephen Stanley presents a eulogy in Marketwatch:

I do not subscribe to the conventional economics view of how the world works. If there are two theories that animate the Powers That Be when it comes to defining Economics, they are the Output Gap theory of inflation and Keynesianism (the idea that putting cash in consumers’ pockets will generate a huge spending response).

I have contended repeatedly over the last few years that if there is one good thing that may come out of the economic mess we have suffered through over the last several years, it might be a once-and-for-all discrediting of these two hoary 1960s mantras. Both were all but killed in the 1980s after they had contributed mightily to the stagflationary debacle of the 1970s but in the last decade both have been resurrected with a vengeance, much like a serial horror film character, to terrorize a new generation of victims.