Below is a letter from Des Moore published in the Financial Review on 29 May. But before I get to the letter itself, let me first reprint the note I sent to Des.

If I assume, as I do, that Y=C+I+G is fundamentally wrong, and that a Keynesian approach to policy is bound to fail, then nothing about the economic problems that have followed the GFC is a surprise. But the questions I would like to ask are two:

1) Who are the leading actively anti-Keynesian economists in the world at the moment, assuming there actually is such a thing?

2) If Keynes is wrong, where should one go to find a more accurate theory of recession and unemployment?

In my view, these are the most important questions in economics at the present time. And I have to tell you that the great surprise to me is that virtually no one has an answer to the first of these questions, although there are some answers to the second.

Kind regards

Where is the locus of anti-Keynesian thought? Who is leading the attack? Des is discussing Robert Skidelsky versus Niall Ferguson, that is, a debate between two historians. Where are the economists? And I have to tell you that however this is resolved, it will not be because of some empirical study based on some dataset. If even at this late date, there is anyone in doubt that the stimulus has been a disaster, there is no turning back from going over the cliff yet again. Unless there is some understanding that existing theory is a deadly fault, that it must be abandoned as a guide to policy, then we will just carry on as before. Here’s the letter sent by Des to the AFR with my further commentary on the other side.

Historian Niall Ferguson argued that the reduction in budget deficits after the 2008-09 UK recession helped improve the growth in GDP while the author of a biography on Keynes, Robert Skidelsky, argued that it reduced it.

These arguments are about hypotheticals and difficult to judge. They are important, however, in the current context faced by Australia and other countries.

Note first that UK growth has recovered to pre-2008 rates after the 2008-09 recession. This has occurred notwithstanding that “underlying balances” (budget deficits) published by the OECD have fallen from 8.5 per cent of GDP in 2009 to an estimated 4.9 per cent in 2015.

Second, Skidelsky does not explain why the large deficits in each of the five years prior to 2008 then resulted in two years of recession.

Third, Skidelsky makes no reference to the policy implications of the increase in government debt levels, which are now over 100 per cent of GDP for major countries, including the UK.

Fourth, in his article published in Australian media in 1932 Keynes himself approved the Premiers Plan to reduce budget deficits. An examination of the recovery from the 1930’s recession shows that Australia performed better than most other countries and that President Roosevelt’s budget stimuli brought a slower recovery in the US.

The solution is to reduce the role of government and increase the opportunities for private enterprises.

I agree, of course, but what’s the theory? What is the foundation on which such advice is given? It’s not just that you should do this and this, but why should you do this and this. That is the issue to me. What disturbs me to a very great extent is that it is an issue that has not, so far as I can tell, been taken up by anyone anywhere.