> Despite several tries, I never really got a satisfactory answer from the
> Post Keynesians to whom Mat's comments were addressed on how the U.S. has
> accomplished a 7-year expansion at the same time it was balancing its
> budget. The best candidate was Paul Davidson's nomination of exports. But
> the recent economic history of the U.S. - a consumption boom in accordance
> with the "German view" - suggests that maybe the orthodox have a better
> understanding than the Keynesians. Since the Keynesians couldn't explain
> the stagflation of the 1970s and now they seem unable to explain the U.S.
> in the 1990s, what is left of KeynesianisM
i'll play devil's advocate:
1. 'Keynesianism couldn't explain the 70s stagflation.'
neoclassical synthesis Keynesianism couldn't explain that or anything else, but Keynesianism, even of a crude kind, could and can easily explain stagflation. The idea that deficient demand means unemployment and excess demand means inflation and therefore you can't have both at the same time in the K view is a caricature. Simplistically, there are other kinds of inflation than that due to excess demand. Further, the 'failure' of policy to 'cure' stagflation can easily (and reasonably) be argued as not the result of the weakness of Keynesian policy, but rather that Keynesian policy was not nearly strong or bold enough.
2. consumption boom/deficit reduction
the consumption boom doesn't have to be (is not) due to decreased budget deficits or decreased G (important to distinguish these, also, btw). Doug, don't tell me you believe externally financed C and I are financed out of a fixed pool of savings, and G borrowing "crowds out" private in a modern capitalist economy running below full capacity and full employment of resources and with a modern banking system? modern financial systems don't need savings to extend credit.
the consumption boom was financed by easy credit, supported by Veblen-type soiological factors, corporate media hype, and probably some real or perceived 'wealth effect' for certain sectors of the pop. if you factor in leasing, consumer indebtedness is higher than ever.
not unrelatedly, inventory investment has been unbelievably high--there are cumulative processes, etc. Also some studies show the high levels of fixed capital investment a driving force of aggregate demand growth.
and then there is the trade sector, as you mentioned.
The point being that there are a number of components of aggregate demand and so higher in some categories can offset lower in others.
As for the budget balancing, the real "balancing" is only happening now, and we need to remember time lag. There was an unseasonably warm winter that could have had some effect in extending the impact of the significant decrease in the deficit.
But no doubt that many "Keynesian" or "Kaleckian" based models are predicting recession and worse on the way, with the bubble, the unsustainable rate of consumer indebtedness and inventory investment, the Asian crisis cutting off the possibility of the export sector offsetting, and the contractionary fiscal stance.
No doubt Keynesian analysis needs to be heavily supplemented with other factors, but not from the orthodoxy. But it is not quite as bad as your you indicate, and many who draw on Keynes do supplement or try to go beyond Keynes and the old Keynesian variables.
We probably take for granted Keynes main contribution: refuting Say's Law with the Principle of Effective Demand. Keynes didn't pay adequate attention to income distribution, technical change, sectoral relations, class. Kalecki, who independently developed the principle of effective demand, was better on some of this. Both drew on Marx, in Keynes's case especially the circuits of capital. Of course, Keynes himself had many nasty characteristics, etc. But he, like Marx, understood the importance of the "fallacy of composition" for macroeconomics, of money, etc.
Keynes(ianism) is incomplete, inadequate, and sometimes wrong. but to say neoclassical economics is better for understanding the 70s, 90s for whatever, i don't agree.
By the way, have you ever seen Fred Thayer's stuff (some in _Social Policy_) on the historical relation of depressions/recessions and fiscal contraction. There's pretty strong historical evidence for a relation, with causality going from fiscal cintraction to recession and depression.
Mat