How ridiculously empty Keynesian theory is. But if you combine deficits with the promise of billions of dollars to businesses that lose money and individuals who don’t work, along with voting majorities for parties who promise never to reduce the level of welfare, it’s amazing how attractive these ideas become.

There’s a new book by Scott Sumner with the title, The Midas Paradox: Financial Markets, Government Policy Shocks, and the Great Depression. As is all too frequent, the view is restricted to the United States, where the Great Depression was prolonged by something like a decade until the 1940s because of Roosevelt and the New Deal. Australia reached its trough in 1932 and the UK and most of the world in 1933. The true lessons to be learned are found by not looking at the US. This is the blurb found at the link to the book.

Economic historians have made great progress in unraveling the causes of the Great Depression, but not until Scott Sumner came along has anyone explained the multitude of twists and turns the economy took. In The Midas Paradox: Financial Markets, Government Policy Shocks, and the Great Depression, Sumner offers his magnum opus—the first book to comprehensively explain both monetary and non-monetary causes of that cataclysm.

Drawing on financial market data and contemporaneous news stories, Sumner shows that the Great Depression is ultimately a story of incredibly bad policymaking—by central bankers, legislators, and two presidents—especially mistakes related to monetary policy and wage rates. He also shows that macroeconomic thought has long been captive to a false narrative, which continues to misguide policymakers in their quixotic quest to promote robust and sustainable economic growth.

The Midas Paradox is a landmark treatise that solves mysteries that have long perplexed economic historians and corrects misconceptions about the true causes, consequences, and cures of macroeconomic instability. Like Milton Friedman and Anna J. Schwartz’s A Monetary History of the United States, 1867–1960, it is one of those rare books destined to shape future research and debate on the subject.

With economics, it’s a “can’t-do attitude” that overwhelmingly works best. Leave it to the market is the answer, although there are some things governments can do. Making adjustment easier, diminishing regulation, pulling back on public spending and easing credit conditions are classical elements in a recovery program. None of these were followed by the US while all of these were followed by Australia and the UK. That’s why our economies recovered and the American economy didn’t. These are the lessons that ought to have been learned but the solipsistic approach to economic policy by American economists, where only the US economy is examined, means that the actual lessons that ought to have been learned never are. Keynes may have been British but it is Samuelson who spread the disease across the globe.

I have taken the quote below from Terry McCrann via Andrew Bolt who titles his post Economy lifts, but where’s the business investment? Trying to make sense of an economy by using modern economic theory to find your way is an impossibility. I say this often, but who can understand any of this if they have not read pre-Keynesian economics? It’s impossible to read J.S. Mill unless you are schooled in the classics, but you can read Henry Clay’s 1916 Economics: an Introduction for the General Reader, or even my own Free Market Economics: an Introduction for the General Reader (2nd ed 2014). If you do not understand the classical theory of saving and investment you will never be able to think through economic events. This is the excerpt from Terry.

THE “good” economic growth figures for the September quarter capture a simple, brutal reality about today’s, and even more, tomorrow’s Australia: after the resources boom we are getting poorer…

There’s a seeming contradiction or paradox in the GDP figures. We continue to record relatively strong growth in the economy. That’s, of course, “relative” to other developed economies which are barely staying out of recession….

Yet right now it’s become a sort of empty growth. In simple terms we are producing more but earning less; we are shipping off more and more of Western Australia to Japan and of course especially China and getting less per tonne and so more or less the same actual dollars overall…

But our incomes aren’t growing.

This shows up in all, sorts of places — like wages, which are now growing at their lowest pace in 60 years and barely keeping up with (very low) inflation.

If it’s not value adding it will not add to growth. If it requires a government subsidy – green energy, NBN, pink batts – it will lower our standard of living. You cannot make an economy grow from the demand side. The proportion of non-Keynesians in the profession is under 10%, and the proportion who are actively anti-Keynesian may be less than 1%. What to do about this I do not know, but you would think by now that there would be some kind of effort to overturn Keynesian macro, but near as I can tell, there is hardly a whisper of dissent.