Paul Krugman has an interesting blog post arguing that Keynes is slowly winning. But, I must admit, I find it dismaying how little of the contrary evidence is considered. Let’s say you set out to write a blog post about Keynes losing, what might you cite?:
1. Keynesians predicted disaster following the American fiscal sequester, and the pace of the recovery accelerated.
2. Even Obama and the Democrats are writing down, and seeing through, budgets with declining levels of discretionary spending.
3. The UK saw a rapid recovery, and the BOE kept nominal gdp growing at a good pace, even in the presence of a so-called “liquidity trap.” This is not mainly due to the UK having “stopped tightening,” nor did the Continental economies which let up on austerity see similar recoveries. Nor had the Keynesians predicted that letting up on tightening would bring such a strong recovery, Summers for instance had predicted exactly the opposite.
4. Rate of change recoveries in the Baltics — which really did try a kind of radical austerity — have been stronger and more rapid than Keynesians were predicting, even if absolute levels remain less than ideal.
5. France doesn’t seem to have much interest in trying additional government spending, even though their economy is flailing and no other attempted remedies have been successful.
6. Ireland finally is seeing a rapid recovery, albeit one with highly uneven distributional consequences and possibly another real estate bubble. The “get the pain over with” approach is looking better right now than it did say two years ago.
7. It is the ECB which seems to hold all of the levers in the eurozone, and the Japanese central bank which is making the (possibly failed) splash in Abenomics. That may be anti-anti-Keynesian, but it’s not exactly Keynesian either.
8 The Chinese have moved to discount rate cuts, and they seem to realize that more fiscal spending will only postpone their day of reckoning in terms of excess capacity. That’s not an “anti-Keynesian” attitude, given the current features of their economy, but it’s not exactly screaming the relevance of Keynes’s GT either.
9. It looks like Germany actually will support some additional infrastructure spending. You could call that a Keynesian victory, but more likely it also will be used to shut down further debate. Here is one estimate of what will be done. It’s not that much.
10. Japan is in a (supposed) liquidity trap, but negative real shocks have not in fact helped their economy, contra to the predictions of that model (start with here and here). Nor does anyone think that the bad weather in the first quarter of U.S. 2014 was good for us, although a basic liquidity trap model implies it will boost inflation (beneficially) because the supply restrictions lead to price hikes which tax currency holdings and thus boost AD. Come on, people, that is weak.
11. A lot of the cited predictions of the Keynesian or liquidity trap model are in fact simple predictions of efficient markets theory (such as on interest rates), predictions of market monetarism or credit-based macro theories (low inflation), or regularities that have held for decades (budget deficits not raising real interest rates). It’s just not that convincing to keep on claiming these predictions as victories for Keynesianism and in fact I (among many others) predicted them all too. I never thought I was much of a sage for getting those variables right.
12. Whether we like it or not, large chunks of Asia still seem to regard Keynesian economics with contempt. They prefer to stress supply-side factors.
13. At the Nobel level, Mortensen, Pissarides, and Fama do not exactly count as Keynesian material, admittedly Shiller is on the other end of the scale, though even there I am not aware he has a strong record of speaking out on behalf of activist fiscal policy.
14. It is now widely acknowledged that there has been a productivity problem in recent times (or maybe longer), and thus those measurements of “the output gap” are looking smaller all the time. Again (a common pattern in these points), nothing there implies “Keynes is wrong,” but it does make Keynes less relevant.
15. Where Keynesian views have looked very good is that government spending cuts do — these days — bring steeper and rougher gdp tumbles than was the case in the 1990s. That is very important, but a) it is increasingly obvious that there is catch-up for countries with OK institutions, and b) correctly or not, the world really hasn’t been convinced there is major upside to expanding fiscal policy.
The point is not that these citations give you a fully balanced view — they don’t! And it would be wrong to conclude that Keynes was anything other than a great, brilliant economist. Rather these citations, plus many of Krugman’s points, give you some beginnings for this issue. It’s not nearly “Keynes’s time” as much as many people are telling us, after all his biggest book is from 1936 and that is a long time ago. Keynes is both winning and losing at the same time, like many other people too, fancy that.