Keynes, macro economics and other terms need to be more widely understood.

Macroeconomics as a field is not very impressive, frankly.

In my view, it is more glorified accounting and policy than anything remotely related to testable economic theory!

Keynesian economics — the stuff that most macro courses are made of — smacks of a model created to justify a pre-conceived belief that government can run businesses better than private industry can.  Keynes spoke strictly of demand-side policies, namely fiscal and monetary policies, which create a large role for government intervention, as opposed to supply side policies, which basically get government out of the way by lowering taxes, fees, paperwork, and restrictions, and allow private industry to take risks and create value and manifest economic freedom.

There is more unexplained in current macroeconomic theory than there is explained.

Macroeconomic variables are, by definition, one-period “flow” variables.  Any change in the “stock” of wealth — like investing, housing, saving — are patently ignored.

Thus macro has nothing to say about the relation between saving and investing, on the one hand, and changes in economic wealth on the other. That’s a lot of silence on a critically important issue.

The policy-maker in Keynes’ world can do no wrong.  I’m exaggerating, but only a little.

And, other than the impact of government spending on the budget, basically nothing is said in the macroeconomic models of the fact that the tax revenues that government spends comes out of the hides of private industry and shrinks economic wealth.

Regarding Mankiw’s Macroeconomics text (a Google search will find many references), I actually use it, not because it’s wonderful but, in my view, it’s the least bad of the lot on the basic topic of U.S. macroeconomic theory as it stands today.

It is up to me, as a professor, to explain where I think his book comes up short.  For example, I have thought for some time that his coverage is particularly weak on the Federal Reserve and the money supply, ironically enough, and have supplemented that material with my own notes for some time.

Regarding Mankiw’s comments on first-year economics courses:  I think I may know what he was trying to say, and why the “listener” or interpreter in the form of Steve Keen and others could have misconstrued its meaning.

Mankiw failed clearly to distinguish microeconomics — which is real stuff, and can explain and predict the economic behavior of consumers, businesses, lenders, and borrowers —  and macroeconomics, which certainly cannot.

When he said “not much has changed,” I think he meant that basic microeconomic principles had not changed, not that the markets and national and world economies had not changed.   Microeconomic principles, on which finance and capital markets are based, can and does explain the causes of the financial crisis.  They cannot, however, do much about policy and other politically motivated behaviors.

Lastly, regarding Steve Keen’s Debunking Economics, my guess is that he has likely made other predictions over time that have not come about, and certainly will make more, and we don’t know if the reasons he cited were actually causal.

I do know that he can’t blame economic theory for the crisis; it was people and policymakers driving the truck, not ideas.

I would hope we can learn a thing or two from his work, as well we should, but we need to be careful to put ourselves back in time, knowing what was known then, knowing how differently things would have turned out had just one event been different, or had not occurred.

By Sherry Jarrell

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