Source: Ludwig von Mises Institute
by Jonathan Newman
“The Keynesian paradigm suffered in the stagflation of the 1970s. Price inflation and unemployment surged simultaneously, which resulted in broad skepticism of the old Keynesian models while loyal Keynesians scrambled to offer explanations. Moreover, it became apparent that the Keynesian consumption function didn’t hold up to empirical scrutiny—disposable income wasn’t as good of a predictor of aggregate consumption as early Keynesian models assumed. This watershed moment in the history of economic thought produced new tributaries and strengthened some existing ones. … The mainstream consensus that has emerged out of this hodgepodge is that Keynes was right about a lot, but his framework needs ‘microfoundations.'” (10/14/26)