Keynes' General Theory

     If you haven't yet read Keynes's General Theory of Employment, Interest, and Money, I highly recommend it for you. Some books really do live up to the hype.

     This is actually my second time reading it but I understand it a lot better this time as I have been delving a lot into economics lately. In reading it I keep in mind James Galbraith's point that the claim that Friedman somehow laid a serious blow to Keynesianism at that 1968 academic conference is something of an urban myth.

     He is supposed to have disproved the Phillip's Curve which threw the Keynesian into a terrible dissonance and quandary. Yet Galbraith argues quite persuasively that Keynesians should never have accepted the Phillip's Curve in the first place.

     And he has a point: that what does it really do for Keynesianism? Really nothing. If anything it's a strait jacket as it claims that there's this trade off between inflation and unemployment. Even the great New Economic Keynesians of the Kennedy Administration had bought this hook, line and sinker. They just figured that if that's the case then we should accept a little higher inflation. When Friedman got an Administration who offered him an ear to talk into-Nixon's-, Fed policy was revamped towards preferring unemployment to inflation which was the opposite of  the NEP Keynesians .

   Yet why accept that there is any trade off? Certainly there is no historical data that proves it at all. Even with the sneering term that the conservatives got to coin in the 70s-stagflation-this ignores that "stagflation" discredits the idea that inflation and employment rise and fall together.

   What is particularly interesting in what I've read in Keynes so far is that according to him there is a big difference between the stimulus of a government funded project and a boom that comes from private investment firms. The conservative Republican argument is that you can have one or the other-government stimulus or private investment boom in capital-the former "crowds out" the former. Yet Keynes seems to be suggesting that in point of fact in a deep recession or depression the multiplier from a government stimulus will be felt much faster than a private investment boom- a large part of the effectiveness of the latter is to what extent it is not expected. If it isn't it's much less effective.