praxeological understanding is not mere opinion anymore than is logical understand or mathematical understanding.
that the square root of the number 2 is an irrational number is understood by analysis not by experiment. do you think that the irrationality of the square root of 2 is ‘unproven’ and ‘mere opinion’?
I don’t know, can we mathematically prove that Keynes is wrong? Is there some way to empirically show that Keynesian theory has failed here?
I don’t believe this needs to be done emperically, although emperical evidence can reinforce theory.
Stagflation should have ended Keyens, but it didn’t.
Bloom,
Because no theory can yield predictions that can be used to falsify it. This is because if a test reveals a certain prediction to be false, then an adjustment in underlying assumptions can be made after the fact to accommodate the test result.
This is true for the hard and the soft sciences. For example, gravity predicts that a book will be attracted to the earth because it has greater mass. If I drop my book and it flys upward, should I dispense with the theory of gravity all together? should i attribute to the event to some other unforeseen force? What should I do? Usually, people find ways to rationalize their current conceptions.
Real life example: newtonian physics predicted the orbit of Uranis, yet when observed the orbit did not fit the theory. But rather than rejecting the theory of gravity all together, scientists simply changed on of their underlying assumptions to suit the circumstance.
This is known as the Duhem-Quine Thesis in the Philosophy of Science (it is worth googling).
This why I said empirical research is so frustrating. Personally, I think all of the really important questions are empirical. Yet, finding “truth” through empirical analysis is an imperfect and often satisfying process.
Student,
As a fan of Keynesian economics, what criteria do you think we should be using right now to determine whether Keynes’ theories have worked or not?
Bloom,
Well, I don’t know how we really “should” evaluate anyone’s economic theories. But in terms of my own personal beliefs, it comes down to some combination of:
Logical Consistency - if you’re going to have a theory of the economy, its conclusions need to flow logically from its assumptions.
Empirical Consistency - even though we can’t get conclusive answers from empirical research, its really the only shot we have at any understanding. At the least, you will want your theory to fit the stylized facts of the economy. For example, if your theory predicts that interest rates should rise in a recession and they don’t historically, you will want to think long and hard about why that is the case. Unfortunately, I think most theories will be able largely meet this criteria as well because of the D-Q thesis.
Gut Consistency - your theory should match to some extent what your gut tells you about the world. If your theory relies on economic actors have perfect foresight or totally oblivious about the future, you should ask yourself if that gells with your conception of reality. And if it doesn’t, you need to explain to yourself why gut is wrong.
Over all, I just think that Keynesian theories fit these criteria better than any other I have studied. Not everyone is convinced, but I would like to try over time. 
Has anyone here read Where Keynes Went Wrong? I just got back from Barnes N Noble and read some of it and thought the author did a very good job of showing that Keynes was a nut job.
Specifically because emerical evidence is always given too much conclusive weight. Empirical evidence is nearly always misleading. Research can too short, or too isolated to a specific demography or situation ect… Measuring human activity than accurately ascertaining that data is possibly nearly impossible. Not too mention that all empirical studies are bias before they even begin.
It is precisely because emperical evidence is given so much weight that we see these silly problems and silly solutions. Socialists have their graphs, conservatives have their graphs, there are right graphs, there are left graphs. Up, down, backwards, forwards, progressive, and non-progressive graphs.There is right research and left research and all of them supposedly substantiate their believes while contradicting their opponents.
the world places A Posteriori as their paramount method of discerning human activity and events. Because of this they go in a never ending circles of confusion. Example being the supposed coming Ice age in the 70’s to the now supposed alarming warming trend. The world desperately looks for an answer in data.
Austrian’s on the other hand place logic first, then use the data to help us understand the logic so that we can better understand the results. In other words, A priori comes first and than is followed by research if needed.
This is why AE is A Priori. Thats how we get around making ourselves look like idiots every 10 years. [:)]
That’s interesting. But, unfortunately, Keynes fails 2 our of 3.
Logic is replaced with class specific purchasing behaviors. That is, the higher class has a higher marginal propensity to save, and that’s fixed. The purchasing behaviors of the classes remains absolutely the same, even in the face of changing income streams. Monetary and fiscal stimulus does not alter these patterns. Keynes doesn’t investigate the boom part of the cycle, and the cause is purely mystical–animal spirits (when fear over takes greed), and speculation. Also, it’s kind of hard to explain asset bubbles when capital is perfectly homogeneous, as it is in Keynes’ world. Consumption and investment move together, and capital is perfectly substitutable.
Keynes says that depressions are characterized by an imbalance between savings and investment. True enough, but for him, it’s when savings is greater than investment S>I). He blamed the gold standard’s inelasticity for this problem, namely having the market rate of interest elevated above the natural rate. But, the gold standard can’t be blamed anymore, and who would honestly claim that savings is greater than investment? It’s obvious that the Austrians are correct, and that the problem lies within a suppressed market rate below the natural rate (boom), which causes the bust (when it rises back towards the natural rate, liquidating misdirections of resources). Plus, simultaneous inflation+unemployment around the world, kind of hurts him.
Keynes does great here. The theories are definitely consistent with people’s gut, namely their misconceptions. Evil speculating irrational rentiers who cause massive disequilibria because of wild speculation, and are captured by their fears (causeless I might add). The neoclassical’s have omnipotent actors engaging in probability theory all the time, while the Keynesians have mindless savages spending like mad and borrowing at the margin.
I really want to read that boo, but I feel that if I read any dedicated critique of The General Theory I would do a disservice to myself if I read it before Keynes’ book. The problem is that I don’t plan to read The General Theory for quite a while.
Any emperical study can be tailored to add merit to whatever argument it wishes. This is why emperical studies are sto obsured.
Keynesian economists are the best. THey equate fundamentally more spending with a better economy. In other words, printing lots of money and mal-investment never enter their equation of statistics. In fact creating more money makes it look as if the economy is growing. See how rediculous it gets when you remove logic from the equation? So ofcoarse to them, their data is entirely consistent. 
Let me put it to you this way. If I flip a coin, heads or tails. I can rationally conclude that I have a 50% chance that the coin will land heads or tails without any testing at all.(A Priori)
Lets say a scientist come along and flips the coin 10 times. 7 times he get heads, 3 times tails. Is he going to conclude that the odds are 70% chance of landing heads? Is he going to conclude that my 50% theory is false? Then proceed to provide evidence where I am wrong? (A Posteriori)
In this situation who carries the fallacy?
Keynesian economists likewise don’t see their fallacy. They see 70% on paper and to them thats all thats there. To them, it matters not if we make widgets that society wants or does not want. All that matters is that we make them. It matters not if we solve un-employment by arbitrarily digging ditches. What matters is that people are working. To them, all that matters is numbers. Logical arguments are just too inconvenient for them, they can’t be bothered by such exercises!
Esuric,
It has been a long time since I read the General Theory (with interpretive help from Hicks’ article “Keynes and the Classics” and Hansen’s Guide to Keynes), but I don’t remember class specific behaviors being the primary driver of his story. And I am quite certain capital theory does not play a major role in his story (he makes no specific assumptions of homogeneous capital that I recall, and if he did it was certainly only in passing and not a primary contributor to his story).
At any rate, Keynesian economics did not end with Keynes. When I talk about “Keynesian economics” I simply mean those models where economic downturns are primarily explained through shifts in demand. In this broader tradition, we find that our understanding has progressed through the work of “Keynesian” economists ranging from Milton Friedman to James Tobin to Greg Mankiw.
PS* Here is a good essay by Brad Delong on the evolution of “Keynesian” thought after the “Monetarist counter-revolution”.
I thought the same thing before I read the book but the first half of the book is basically a collection of quotes and writings by Keynes. The second half goes into the critiquing of those quotes and writings. Before even getting to the author’s critiques I was already asking myself if this guy (Keynes) was for real. The author did a great job in breaking down what Keynes wrote and believed (much better then I would have been able to have done) but it didn’t sway my beliefs in any direction different to where they already were.
Chapter 16, he dismisses Bohm-Bawerk and uses a pure productivity theory.
Oh, Neo-Keynesian. The guys who are all like, “No everything is great!” in 2006, and “don’t worry this thing will be over soon” in 2009. The DSGE models, rational expectations, and all that other jazz.
Honestly, unless you just have a curiosity for economic intellectual history, this book is not worth reading.The only thing you really need to know about Keynes is what Hicks summed up in IS-LM. It is not the most complete interpretation of Keynes, but it is essentially how the world came to understand him.
Pick up a good textbook like Bernanke and Abel’s Macroeconomics, flip to the section on IS-LM and learn it all in about a 3-4 hours. Then go looking for criticisms of the model (there are hundreds) and move on from there. Modern New Keynesian economics goes beyond IS-LM but this should give you the gist.
Why would you not read this book if you want to know Keynes? Like I said in my previous reply, the first half contains a boat load of his own quotes and writings.
If you want to know Keynes, you should. If you want to know modern Keynesian economics, this book should be low on your list. Get to it when you finish your degree.
Yah, those guys. Of course, as I indicated earlier, I don’t put much faith in economic predictions.
The people who claim to have seen this comming are typically the “broken clocks”* that have predicted 5 of the last 1 recessions. For example, how long have Austrains been claiming that the low interest rates of the middle of the decade would result in a recession any minute now?
Or, for another example, how long has Krugman been worried that a liquidity trap would hit the United States from a collapse in investment spending of one form or another? Since at least 1999 when he published The Return of Depression Economics by my reckoning.
Personally, I give neither of them credit for predicting the current recession, because I have never heard them predict anything else.
*broken clocks can still be right twice a day.
Haha Okay that’s it, no one else talk to me. 
I have a linear algebra exam this week and these conversations are so distracting (that’s a good thing, you’re all very fun to talk to)!!!
I will be back at the end of the exam period.