Editing Keynesian economics (section)

==Other schools of economic thought==
The Keynesian schools of economics are situated alongside a number of other schools that have the same perspectives on what the economic issues are, but differ on what causes them and how best to resolve them. Today, most of these schools of thought have been subsumed into modern macroeconomic theory.

===Stockholm School===
{{Main|Stockholm school (economics)}}
The [[Stockholm school]] rose to prominence at about the same time that Keynes published his General Theory and shared a common concern in business cycles and unemployment. The second generation of Swedish economists also advocated government intervention through spending during economic downturns<ref>{{cite book|title=The Stockholm School of Economics Revisited|last=Jonung|first=Lars|publisher=Cambridge University Press|year=1991|page=5}}</ref> although opinions are divided over whether they conceived the essence of Keynes's theory before he did.<ref>{{cite book|title=The Stockholm School of Economics Revisited|last=Jonung|first=Lars|publisher=Cambridge University Press|year=1991|page=18}}</ref>

===Monetarism===
{{Main|Monetarism}}
There was debate between [[Monetarism|monetarists]] and Keynesians in the 1960s over the role of government in stabilizing the economy. Both monetarists and Keynesians agree that issues such as business cycles, unemployment, and deflation are caused by inadequate demand. However, they had fundamentally different perspectives on the capacity of the economy to find its own equilibrium, and the degree of government intervention that would be appropriate. Keynesians emphasized the use of [[discretionary policy|discretionary fiscal policy and monetary policy]], while monetarists argued the primacy of monetary policy, and that it should be rules-based.<ref>{{cite book|title=Macroeconomics|last=Abel|first=Andrew|author2=Ben Bernanke|publisher=Pearson Addison Wesley|year=2005|isbn=978-0-321-22333-3|edition=5th|pages=543–57|chapter=14.3}}</ref>

The debate was largely resolved in the 1980s. Since then, economists have largely agreed that central banks should bear the primary responsibility for stabilizing the economy, and that monetary policy should largely follow the [[Taylor rule]] – which many economists credit with the [[Great Moderation]].<ref>{{cite web|url=http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2004/20040220/default.htm|title=The Great Moderation|last=Bernanke|first=Ben|date=20 February 2004|work=federalreserve.gov|access-date=15 April 2011|archive-date=7 June 2011|archive-url=https://web.archive.org/web/20110607032548/http://www.federalreserve.gov/boarddocs/speeches/2004/20040220/default.htm|url-status=live}}</ref><ref>{{Cite web |url=http://www.chicagofed.org/digital_assets/publications/working_papers/2007/wp2007_07.pdf |title=Federal Reserve Bank of Chicago, ''Monetary Policy, Output Composition and the Great Moderation'', June 2007 |access-date=2 February 2013 |archive-date=21 October 2012 |archive-url=https://web.archive.org/web/20121021152636/https://www.chicagofed.org/digital_assets/publications/working_papers/2007/wp2007_07.pdf |url-status=live }}</ref> The [[2008 financial crisis]], however, has convinced many economists and governments of the need for fiscal interventions and highlighted the difficulty in stimulating economies through monetary policy alone during a [[liquidity trap]].<ref>{{cite web|url=http://www.cedes.uerj.br/documentos/artigos/Consensus%20Dissensus%20and%20Economic%20Ideas%20The%20Rise%20and%20Fall%20of%20Keynesianism%20during%20the%20economic%20crisis.pdf|title=Consensus, Dissensus and Economic Ideas: The Rise and Fall of Keynesianism During the Economic Crisis|author=[[Henry Farrell (political scientist)|Henry Farrell]] and [[John Quiggin]]|date=March 2012|publisher=The Center for the Study of Development Strategies|archive-url=https://web.archive.org/web/20130825142408/http://www.cedes.uerj.br/documentos/artigos/Consensus%20Dissensus%20and%20Economic%20Ideas%20The%20Rise%20and%20Fall%20of%20Keynesianism%20during%20the%20economic%20crisis.pdf|archive-date=25 August 2013|url-status=dead|access-date=29 May 2012}}</ref>

===Marxism and Public choice===
{{See also|Marxian economics|Public choice}}

Some Marxist economists criticized Keynesian economics.<ref>{{cite book|title=A History of Marxian Economics, Volume II: 1929–1990|last1=Michael Charles Howard, John Edward King|publisher=Princeton Legacy library|pages=91–108}}</ref> For example, in his 1946 appraisal<ref>{{cite journal|last1=Sweezy|first1=P. M.|date=1946|title=John Maynard Keynes|journal=Science and Society|pages=398–405}}</ref> [[Paul Sweezy]]—while admitting that there was much in the ''General Theory'''s analysis of effective demand that Marxists could draw on—described Keynes as a prisoner of his neoclassical upbringing. Sweezy argued that Keynes had never been able to view the capitalist system as a totality. He argued that Keynes regarded the class struggle carelessly, and overlooked the class role of the capitalist state, which he treated as a ''[[deus ex machina]]'', and some other points. While [[Michał Kalecki]] was generally enthusiastic about the [[Keynesian Revolution]], he predicted that it would not endure, in his article "Political Aspects of Full Employment". In the article Kalecki predicted that the full employment delivered by Keynesian policy would eventually lead to a more assertive working class and weakening of the social position of business leaders, causing the elite to use their political power to force the displacement of the Keynesian policy even though profits would be higher than under a laissez faire system: The elites would not care about risking the higher profits in the pursuit of reclaiming prestige in the society and the political power.<ref>{{cite web|url=http://mrzine.monthlyreview.org/2010/kalecki220510.html|title=Political Aspects of Full Employment|author=Kalecki|year=1943|work=[[Monthly Review]]|publisher=[[The Political Quarterly]]|access-date=2 May 2012|archive-date=7 April 2012|archive-url=https://web.archive.org/web/20120407014237/http://mrzine.monthlyreview.org/2010/kalecki220510.html|url-status=live}}</ref>

[[James M. Buchanan]]<ref>James M. Buchanan and Richard E. Wagner, ''Democracy in Deficit: The Political Legacy of Lord Keynes'' (1977)</ref> criticized Keynesian economics on the grounds that governments would in practice be unlikely to implement theoretically optimal policies. The [[implicit assumption]] underlying the Keynesian fiscal revolution, according to Buchanan, was that economic policy would be made by wise men, acting without regard to political pressures or opportunities, and guided by disinterested economic technocrats. He argued that this was an unrealistic assumption about political, bureaucratic and electoral behaviour. Buchanan blamed Keynesian economics for what he considered a decline in America's fiscal discipline.<ref>Robert D. McFadden, [https://www.nytimes.com/2013/01/10/business/economy/james-m-buchanan-economic-scholar-dies-at-93.html?pagewanted=all James M. Buchanan, Economic Scholar and Nobel Laureate, Dies at 93] {{Webarchive|url=https://web.archive.org/web/20130515115238/http://www.nytimes.com/2013/01/10/business/economy/james-m-buchanan-economic-scholar-dies-at-93.html?pagewanted=all |date=15 May 2013 }}, ''New York Times'', 9 January 2013</ref> Buchanan argued that deficit spending would evolve into a permanent disconnect between spending and revenue, precisely because it brings short-term gains, so, ending up institutionalizing irresponsibility in the federal government, the largest and most central institution in our society.<ref>[[Tyler Cowen]], [https://www.nytimes.com/2011/03/06/business/06view.html It's Time to Face the Fiscal Illusion] {{Webarchive|url=https://web.archive.org/web/20161002021349/http://www.nytimes.com/2011/03/06/business/06view.html |date=2 October 2016 }}, ''New York Times'', 5 March 2011</ref>

[[Martin Feldstein]] argues that the legacy of Keynesian economics–the misdiagnosis of unemployment, the fear of saving, and the unjustified government intervention–affected the fundamental ideas of policy makers.<ref>{{cite journal|last1=Feldstein|first1=Martin|date=Summer 1981|title=The retreat from Keynesian economics|journal=The Public Interest|pages=92–105}}</ref>
[[Milton Friedman]] thought that Keynes's political bequest was harmful for two reasons. First, he thought whatever the economic analysis, benevolent dictatorship is likely sooner or later to lead to a totalitarian society. Second, he thought Keynes's economic theories appealed to a group far broader than economists primarily because of their link to his political approach.<ref>{{cite journal|last1=Friedman|first1=Milton|date=1997|title=John Maynard Keynes|journal=FRB Richmond Economic Quarterly|volume=83|pages=1–23}}</ref>
[[Alex Tabarrok]] argues that Keynesian politics–as distinct from Keynesian policies–has failed pretty much whenever it's been tried, at least in liberal democracies.<ref>[http://marginalrevolution.com/marginalrevolution/2011/02/the-failure-of-keynesian-politics.html "The Failure of Keynesian Politics"] {{Webarchive|url=https://web.archive.org/web/20150416032545/http://marginalrevolution.com/marginalrevolution/2011/02/the-failure-of-keynesian-politics.html |date=16 April 2015 }} (2011)</ref>

In response to this argument, [[John Quiggin]],<ref>John Quiggin, [http://johnquiggin.com/2003/07/23/public-choice-marxism/ Public choice = Marxism] {{Webarchive|url=https://web.archive.org/web/20141006125549/http://johnquiggin.com/2003/07/23/public-choice-marxism/ |date=6 October 2014 }}</ref> wrote about these theories' implication for a liberal democratic order. He thought that if it is generally accepted that democratic politics is nothing more than a battleground for competing interest groups, then reality will come to resemble the model.
[[Paul Krugman]] wrote "I don't think we need to take that as an immutable fact of life; but still, what are the alternatives?"<ref>Paul Krugman, [https://krugman.blogs.nytimes.com/2011/02/16/living-without-discretionary-fiscal-policy/ "Living Without Discretionary Fiscal Policy"] {{Webarchive|url=https://web.archive.org/web/20170915204825/https://krugman.blogs.nytimes.com/2011/02/16/living-without-discretionary-fiscal-policy/ |date=15 September 2017 }} (2011)</ref>
Daniel Kuehn, criticized James M. Buchanan. He argued, "if you have a problem with politicians – criticize politicians," not Keynes.<ref>Daniel Kuehn, [http://factsandotherstubbornthings.blogspot.com/2011/10/democracy-in-deficit-hayek-edition.html Democracy in Deficit: Hayek Edition] {{Webarchive|url=https://web.archive.org/web/20141011030954/http://factsandotherstubbornthings.blogspot.com/2011/10/democracy-in-deficit-hayek-edition.html |date=11 October 2014 }},</ref> He also argued that empirical evidence makes it pretty clear that Buchanan was wrong.<ref>Daniel Kuehn, [http://factsandotherstubbornthings.blogspot.com/2013/02/yes-lot-of-people-have-very-odd-view-of.html Yes, a lot of people have a very odd view of the 1970s] {{Webarchive|url=https://web.archive.org/web/20150704085659/http://factsandotherstubbornthings.blogspot.com/2013/02/yes-lot-of-people-have-very-odd-view-of.html |date=4 July 2015 }}</ref><ref>Daniel Kuehn, [http://www.factsandotherstubbornthings.blogspot.com/2013/01/the-significance-of-james-buchanan.html The Significance of James Buchanan] {{Webarchive|url=https://web.archive.org/web/20150704001624/http://www.factsandotherstubbornthings.blogspot.com/2013/01/the-significance-of-james-buchanan.html |date=4 July 2015 }}</ref>
[[James Tobin]] argued, if advising government officials, politicians, voters, it's not for economists to play games with them.<ref>{{cite book|title=Modern Macroeconomics: Its Origin, Development and Current State|last1=Snowdon|first1=Brian, Howard R. Vane|date=2005|page=155}}</ref>
Keynes implicitly rejected this argument, in "soon or late it is ideas not vested interests which are dangerous for good or evil."<ref>{{cite journal|title=The General Theory of Employment, Interest And Money|journal=Nature|volume=137|issue=3471|pages=761|last1=Keynes|first1=John Maynard|date=1936|bibcode=1936Natur.137..761B|doi=10.1038/137761a0|s2cid=4104514}}</ref><ref>{{cite book|title=Public Choice Analysis in Historical Perspective|url=https://archive.org/details/publicchoiceanal0000peac|url-access=registration|last1=Peacock|first1=Alan|date=1992|publisher=Cambridge University Press|page=[https://archive.org/details/publicchoiceanal0000peac/page/60 60]|isbn=9780521430074}}</ref>

[[Brad DeLong]] has argued that politics is the main motivator behind objections to the view that government should try to serve a stabilizing macroeconomic role.<ref>J. Bradford DeLong, [http://www.project-syndicate.org/commentary/the-retreat-of-macroeconomic-policy/ "The Retreat of Macroeconomic Policy"] {{Webarchive|url=https://web.archive.org/web/20151002134640/http://www.project-syndicate.org/commentary/the-retreat-of-macroeconomic-policy |date=2 October 2015 }}, ''Project Syndicate'', 25 November 2010</ref> [[Paul Krugman]] argued that a regime that by and large lets markets work, but in which the government is ready both to rein in excesses and fight slumps is inherently unstable, due to intellectual instability, political instability, and financial instability.<ref>Paul Krugman, [https://krugman.blogs.nytimes.com/2010/11/26/the-instability-of-moderation/ "The Instability of Moderation" (26 November 2010)] {{Webarchive|url=https://web.archive.org/web/20170915204529/https://krugman.blogs.nytimes.com/2010/11/26/the-instability-of-moderation/ |date=15 September 2017 }}</ref>

===New classical===
{{Main|New classical macroeconomics}}
{{See also|Lucas critique}}
Another influential school of thought was based on the [[Lucas critique]] of Keynesian economics. This called for greater consistency with [[microeconomic]] theory based on [[rational choice theory]], and in particular emphasized the idea of [[rational expectations]]. Lucas and others argued that Keynesian economics required remarkably foolish and short-sighted behaviour from people, which totally contradicted the economic understanding of their behaviour at a micro level. [[New classical economics]] introduced a set of macroeconomic theories that were based on optimizing [[microfoundations|microeconomic]] behaviour. These models have been developed into the [[real business-cycle theory]], which argues that business cycle fluctuations can to a large extent be accounted for by real (in contrast to nominal) shocks.

Beginning in the late 1950s new classical macroeconomists began to disagree with the methodology employed by Keynes and his successors. Keynesians emphasized the dependence of consumption on disposable income and, also, of investment on current profits and current cash flow. In addition, Keynesians posited a [[Phillips curve]] that tied nominal wage inflation to unemployment rate. To support these theories, Keynesians typically traced the logical foundations of their model (using introspection) and supported their assumptions with statistical evidence.<ref name="Akerloff2007">{{cite journal|last=Akerlof|first=George A.|author-link=George Akerlof|year=2007|title=The Missing Motivation in Macroeconomics|url=http://pdfs.semanticscholar.org/66b9/4ca46f30e2fd969232d8d847cd486328b5a0.pdf|archive-url=https://web.archive.org/web/20200803000325/http://pdfs.semanticscholar.org/66b9/4ca46f30e2fd969232d8d847cd486328b5a0.pdf|url-status=dead|archive-date=3 August 2020|journal=American Economic Review|volume=97|issue=1|pages=5–36|doi=10.1257/aer.97.1.5|s2cid=55652693}}</ref> New classical theorists demanded that macroeconomics be grounded on the same foundations as microeconomic theory, profit-maximizing firms and rational, utility-maximizing consumers.<ref name="Akerloff2007" />

The result of this shift in methodology produced several important divergences from Keynesian macroeconomics:<ref name="Akerloff2007" />
# Independence of consumption and current income (life-cycle [[permanent income hypothesis]])
# Irrelevance of current profits to investment ([[Modigliani–Miller theorem]])
# Long run independence of inflation and unemployment ([[natural rate of unemployment]])
# The inability of monetary policy to stabilize output ([[rational expectations]])
# Irrelevance of taxes and budget deficits to consumption ([[Ricardian equivalence]])

=== Austrian school ===
[[Friedrich Hayek|F.A. Hayek]], an Austrian-style economist described Keynesianism as a system of "economics of abundance" stating it is, "a system of economics which is based on the assumption that no real scarcity exists, and that the only scarcity with which we need concern ourselves is the artificial scarcity created by the determination of people not to sell their services and products below certain arbitrarily fixed prices."<ref>{{Cite book |last1=Hazlitt |first1=Henry |title=The Critics of Keynesian Economics |last2=Hayek |first2=F.A. |publisher=Foundation for Economic Education |year=1995 |isbn=1-57246-013-X |pages=126}}</ref> [[Ludwig von Mises]], another Austrian economist, describes a Keynesian system as believing it can solve most problems with "more money and credit" which leads to a system of "[[inflation]]ism" in which "prices (of goods) rise higher and higher."<ref>{{Cite book |last1=Hazlitt |first1=Henry |title=The Critics of Keynesian Economics |last2=von Mises |first2=Ludwig |publisher=Foundation for Economic Education |year=1995 |isbn=1-57246-013-X |pages=305–306; 314}}</ref> [[Murray Rothbard]] wrote that Keynesian-style governmental regulation of money and credit created a "dismal monetary and banking situation," since it allows for the [[central bank]]ers that have the exclusive ability to print money to be "unchecked and out of control."<ref>{{Cite web |date=2024-03-07 |title=The Mystery of Banking |url=https://mises.org/book/export/html/64045 |access-date=2024-03-07 |archive-url=https://web.archive.org/web/20240307141212/https://mises.org/book/export/html/64045 |archive-date=7 March 2024 }}</ref> Rothbard went on to say in an interview that, "There is one good thing about [[Karl Marx|(Karl) Marx]]: he was not a Keynesian."<ref>{{Cite web |date=2024-03-07 |title=Interview with Murray Rothbard on Man, Economy, and State, Mises, and the Future of the Austrian School {{!}} Mises Institute |url=https://mises.org/austrian-economics-newsletter/interview-murray-rothbard-man-economy-and-state-mises-and-future-austrian-school |access-date=2024-03-07 |archive-url=https://web.archive.org/web/20240307141218/https://mises.org/austrian-economics-newsletter/interview-murray-rothbard-man-economy-and-state-mises-and-future-austrian-school |archive-date=7 March 2024 }}</ref>

=== Others ===
The [[social history|social historian]] [[C. J. Coventry]] argues in ''Keynes from Below: A Social History of Second World War Keynesian Economics'' (2023) that Keynes and Keynesian economics was unpopular in the United Kingdom and Australia in the 1940s. Many workers and trades unions, as well as figures in the [[British Labour Party]] and [[Australian Labor Party]], saw Keynesianism as a means of stopping socialism. Keynes was largely supported by business leaders, bankers and conservative parties, or tripartite third way Catholics eager to avoid socialism after the Second World War.<ref name="Keynes From Below">{{cite thesis |last=Coventry |first=C. J. |date=January 2023 |title=''Keynes From Below: A Social History of Second World War Keynesian Economics'' |url=https://www.researchgate.net/publication/340939637 |degree=PhD |chapter= |publisher=[[Federation University Australia]] |docket= |oclc= |access-date=}}</ref> While Coventry agrees that the Keynesianism has considerable benefits, he argues that these benefits arose from the next phase of capitalism with many of the disadvantages being forced onto peoples in the third world, such as in [[British Malaya]] where there was bloodshed for crucial resources.