21 October 2011
(The Drum, 21 October 2011)
Perhaps it does take someone from outside the economics profession to state the obvious. The stimulus packages that were applied across the world, failures each and every one of them, were applied in the name of Keynes. Why, then, did these stimulus packages not work?
The three options raised were firstly, that perhaps we didn't follow Keynes's prescriptions properly. The ideas were right but the execution was poorly done.
Or secondly, Keynesian ideas may have once been relevant but have now become defunct. They might have worked in the institutional environment of the 1930s but given just how much things have changed since then, they could not possibly have worked in the world as it now is.
Or then thirdly, it may be that the classical economics that Keynesian theory replaced was actually superior to the economic theories we teach and apply today. It may just be that Keynes was simply wrong from the start and the economics that Keynesian theory replaced – what Keynes called "classical economics" – is actually a better guide to policy than the macroeconomics we find in our textbooks today.
Steve Kates is an economics professor in the School of Economics Finance and Marketing at RMIT University.
Note: this is an extract only, not the full article.