Arnold Kling  

Rethinking Keynes

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In Would Keynes Change His Mind?, I suggest that some key elasticities in the economy have changed since Keynes wrote.


Today, the economy is more elastic than it was in the 1930's. Today's recession is a far cry from the Great Depression of the 1930's. Of course, some of this may be due to a difference in the severity of the shocks in the two periods (making that comparison would be a difficult task). And much of it is due to a better policy regime, particularly relative to money and banking. But I believe that some of the credit belongs to the more elastic economy.

For Discussion. The thesis of the essay is that the greater complexity and diversity of the economy has reduced the effectiveness of macroeconomic policy. Does that argument make sense?


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David Thomson writes:

“The thesis of the essay is that the greater complexity and diversity of the economy has reduced the effectiveness of macroeconomic policy. Does that argument make sense?”

This argument definitely makes sense. Our society has evolved to the point where it requires a less paternalistic governmental approach. I don’t care whether our elected officials and government bureaucrats possess IQs of 500 and are deemed the wisest and most benevolent people on the planet. These individual would still lack the ability to comprehend even slightly all of the many decisions that must be made daily to keep our economy running effectively.

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