- Keynes microeconomics was brilliant, his macroeconomics have never worked in the real world
- Examples where it failed include: Japan, Venezuela, China, Russia, North Korea, U.S. in every administration since WWII
- Keynes idea that government can borrow and spend to stimulate growth relies on the ignorance of the people to recognize that increased spending will cost them in taxes/inflation, that government will trim back as the economy gets better (which never happens), and assumes that jobs are highly mutable (they’re not any more).
- Not all government spending is bad, it’s just usually worse than the alternatives: and the few successes are the broken window fallacy (looking at seen benefits, while ignoring larger unseen consequences)
I believe that after another 60 years of examples, pounding home why he was wrong, Keynes would have eventually realized that while his micro-theories were valid, but his macro-theories never worked in practice (and broke in the 1970's). Keynes was a reasonable man that admitted Hayek was brilliant. So it is likely he would have revised his views, and would no longer be a Keynesian (at least not as Keynesians today think of it).
Or in other words:
- in theory, theory and practice are the same thing
- in practice, they are not
- Keynes created theories.
- Hayek observed the real world, and human nature, and said that Keynes (and others models) couldn't work, unless you could model human behavior. Which you can't very well.
What is left of Keynes theories has become a mockery of what Keynes had ever believed or advocated: that spending results in magic multipliers (for each dollar you spend, you get many in return), and does so by ignoring that the dollar comes out of the economy (and that this has any de-stimulating effects by people/companies smart enough to see through the charade), or that companies have become more mobile than employees (they can offshore, and job training makes make-work job programs and stimulus way too specialized to have broad economic returns).
Thus simplest argument against Keynesianism is if Keynesianism worked, we wouldn't have recessions in the first place. Governments could manipulate money and spending to just make them disappear -- and of course, while governments can be credited with causing many recessions (or depressions), they can't be credited with stopping any of them.
So Keynes and Hayek would have eventually grown to have more similar views over time. And it probably would have looked more Hayekian than Keynesian.
Written 2012.09.01 Edited 2014.12.22