Here is a question: why did Keynesianism not die in the late 1970’s? Stated alternatively, why does Keynesianism drag on as a zombie branch of economics?
Its likely important to point out that Keynes wrote the General Theory as merely his answer to the economic problems of the day. One might say the General Theory is not good or bad, its merely one man’s educated opinion.
Consider the following regarding “why” Keynesianism will not die and has become the zombie that roams the earth during full moons.
Many have pointed out the flaws in the General Theory e.g. Lucas and Sargent , After Keynesian Economics.(1) Many others have empirically pointed out the flaws. Hence the theory is flawed. Moreover, the results of applying the theory are flawed. That is, results speak for themselves. However Keynesianism lives on in a persistent zombie like fashion.
Maybe the “why” regarding Keynesianism roaming the earth as zombie economics exists in the 1988 Milton Friedman essay entitled John Maynard Keynes. The essay was republished in the 1997 spring edition of the Richmond Federal Reserve Economic Quarterly. (2) The following appears in the essay on pages 20 and 21. Friedman wrote:
“Keynes was exceedingly effective in persuading a broad group—economists, policymakers, government officials, and interested citizens—of the two concepts implicit in his letter to Hayek: first, the public interest concept of government; second, the benevolent dictatorship concept that all will be well if only good men are in power. Clearly, Keynes’s agreement with “virtually the whole” of the Road to Serfdom did not extend to the chapter titled “Why the Worst Get on Top.”
Keynes believed that economists (and others) could best contribute to the
improvement of society by investigating how to manipulate the levers actually or potentially under control of the political authorities so as to achieve desirable ends, and then persuading benevolent civil servants and elected officials to follow their advice. The role of voters is to elect persons with the right moral values to office and then let them run the country.
From an alternative point of view, economists (and others) can best contribute to the improvement of society by investigating the framework of political institutions that will best assure that an individual government employee or elected official who, in Adam Smith’s words, “intends only his own gain . . .is . . . led by an invisible hand to promote an end that was no part of his intention,” and then persuading the voters that it is in their self-interest to adopt such a framework. The task, that is, is to do for the political market what Adam Smith so largely did for the economic market.
Keynes’s view has been enormously influential—if only by strongly reinforcing a pre-existing attitude. Many economists have devoted their efforts to social engineering of precisely the kind that Keynes engaged in and advised others to engage in. And it is far from clear that they have been wrong to do so. We must act within the system as it is. We may regret that government has the powers it does; we may try our best as citizens to persuade our fellow citizens to eliminate many of those powers; but so long as they exist, it is often, though by no means always, better that they be exercised efficiently than inefficiently. Moreover, given that the system is what it is, it is entirely proper for individuals to conform and promote their interests within it. An approach that takes for granted that government employees and officials are acting as benevolent dictators to promote in a disinterested way what they regard as the public’s conception of the “general interest” is bound to contribute to an expansion in governmental intervention in the economy—regardless of the economic theory employed. A monetarist no less than a Keynesian interpretation of economic fluctuations can lead to a fine-tuning approach to economic policy.”
The above statement reveals the social engineering aspect, the politico being engaged in manipulation of the economy for supposed beneficial ends, and even includes a role for the bureaucrat. Hence in the grand scheme of things, those that advocate social engineering [central planning to achieve specific results based on their particular vision], the politico who craves power, and the bureaucrat that craves security find Keynesianism a political perpetuation of their view, power, and security. That is to say, Keynesianism is no longer an economic concept it’s a pure political perpetuation vehicle.
Hence Keynesianism, in the long run, did in fact die, it merely roams the earth as a political zombie.
(1)A paper presented at a June 1978 conference sponsored by the Federal Reserve Bank of Boston and published in its After Keynesian Economics aka After the Phillips Curve: Persistence of High Inflation and high Unemployment. Conference Series No. 19.
(2) Milton Friedman, Richmond Federal Reserve Economic Quarterly, volume 83/2 Spring 1997.