Eighty years ago, Keynes got macro wrong and Keynesians did not notice it to this very day. Yet, anti-Keynesians did not understand it either. This is how they tell the story.
“The main development I want to discuss has already occurred: Keynesian economics is dead [maybe ‘disappeared’ is a better term]. I don’t know exactly when this happened but it is true today and it wasn’t true two years ago. This is a sociological not an economic observation, so the evidence for it is sociological. For example, you cannot find a good, under 40 economist who identifies himself and his work as ‘Keynesian’. Indeed, people even take offense if referred to in this way. At research seminars, people don’t take Keynesian theorizing seriously any more — the audience starts to whisper and giggle to one another. Leading journals aren’t getting Keynesian papers submitted any more.” Robert E. Lucas, ‘The Death of Keynesian Economics’, in Issues and Ideas (Winter 1980).
There is no better proof of the abysmal scientific incompetence of economists in general and of Robert Lucas in particular than this narrative.
Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/ Marshall was false at its core and that nothing less than a paradigm shift was needed: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”
Primary Methodological Directive: Every economist who does not see the necessity of a Paradigm Shift is a moron. Robert Lucas is a moron because he never realized (i) that Walrasianism has already been dead in the cradle, and (ii), that Keynes was right on this point.
The Keynesian Revolution failed because Keynes messed up the move from microfoundations to macrofoundations.#2 Keynes’ own methodological blunder can be exactly located in the General Theory: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)
This syllogism is conceptually and logically defective because Keynes did not come to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)
Because profit and income are ill-defined the whole theoretical superstructure of Keynesianism is false. It was Allais who identified and rectified Keynes’ lethal foundational blunder.#3 Lucas, to his everlasting scientific shame, identified and rectified NOTHING.
Both, the pro-Keynesians and the anti-Keynesians have to this very day NO idea of the fundamental concepts of economics, viz. profit and income. Fact is, the profit theory is false since Adam Smith. Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong.
Economics is dead and it has been killed by the mixed but unbroken phalanx of proto-scientific blatherers.#4 There is nothing to choose between Orthodoxy and Heterodoxy. When economists open their mouths in the scientific community the audience does not giggle but is sickened by the all-pervading stupidity.
What is wrong with economics? Economists, of course!
#2 Keynes’ message for contemporaries
#3 How Keynes got macro wrong and Allais got it right
#4 Economics: 200+ years of scientific incompetence and fraud
Related 'Keynesians ― terminally stupid or worse?' and 'You are fired!' and 'A bitter pill for political economists' and 'The Logical Interface Between Objective Macrofoundations and Subjective Valuations'.