Saurabh has asked a good question: Why is Keynesianism so popular?
Here's my attempted response. Happy to receive any other thoughts.
Keynesianism has the advantage of providing mathematical “tools” that can be used to “understand” the macroeconomy. Whereas the classicals debated issues on the basis of reason, Keynesianism brought in mathematics. Keynes himself brought in very elementary maths, but his followers expanded this “toolkit”.
People like Hayek and Mises (and Rand) would dispute the role of maths in economics, given we don’t understand the underlying dynamics of any “variable”.
Imagine saying c=w+s (i.e. climate = wind plus sun) or some such “macro” mumbo-jumbo. No scientist would come anywhere near such formulation but Keynesianism uses many such formulations to represent the ENTIRE society. Then it goes very, very wrong.
But the use of maths made Keynesianism very attractive to many “smart” people. They thought that economics had “arrived”.
The rebuttal of Keynesianism came through another set of maths – the micro-foundations of the economy (Lucas, etc). But this could not bring in the fine-grained complexity of human behaviour into play, either.
All mathematical approaches to “macro” economics are doomed to fail since there is no way known to mankind to model the behaviour of billions of humans, taken as a whole.
A typical example is the Philips curve which seemed to, at some level, support Keynesian hypotheses empirically, but then failed, entirely. It was just luck that some variables “lined up” for a while.
But given the assertions of Keynesian economics, and its claim that the government can DO something about every economic “issue”, it remains the most heavily used “tool” in economics.
The world is run by “intelligent” quacks.
You can’t stop the continued use of Keynesian economics until economists are taught the complexity of the world and asked to step back and think through human incentives. That’s unlikely to happen, since teaching maths is easy. Teaching complexity is hard.
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