Real Keynesians and the long run

For sheer emptiness, you can now try this by Jonathan Schlefer: Not even Paul Krugman is a real Keynesian. And why not?

But isn’t Keynes now mainstream? No, say Foley and Taylor. The mainstream still sees economies as inherently moving to an optimal equilibrium, as Wicksell did. It still says demand causes short-run fluctuations, but only supply factors, such as the capital stock and technology, can affect long-run growth.

EVEN PAUL KRUGMAN, a self-described Keynesian, Nobel laureate, and New York Times columnist, writes in the 2012 edition of his textbook: “In the long run the economy is self-correcting: shocks to aggregate demand affect aggregate output in the short run but not in the long run.” He says Keynes and Wicksell are in key respects “essentially equivalent.”

Krugman does point to one exception: If interest rates are nearly zero, as during the financial crisis, markets lose restorative force.

The article is not worth the trouble, but the quote from Krugman does seem to suggest he is being pushed by reality. In the long-run (a year or two perhaps) Say’s Law dominates, the economy is production driven.

And there is this by John Cochrane, which was published in The Wall Street Journal in December: An Autopsy for the Keynesians . A bit premature so far as the academic world goes, but I think this is absolutely true:

This year the tide changed in the economy. Growth seems finally to be returning. The tide also changed in economic ideas. The brief resurgence of traditional Keynesian ideas is washing away from the world of economic policy.

No government is remotely likely to spend trillions of dollars or euros in the name of “stimulus,” financed by blowout borrowing. The euro is intact: Even the Greeks and Italians, after six years of advice that their problems can be solved with one more devaluation and inflation, are sticking with the euro and addressing—however slowly—structural “supply” problems instead.

C+I+G remains as the basic brainwashing tool, but even here it seems that the sleepers awake.

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