A Scientific Revolution of Keynesian Economics: US Evidence

Abstract

This paper is a scientific revolution in motion. Pragmatic empirical work is combined with macroeconomic theory to provide a scientific analysis of the influence of Keynesian theories on the performance the US economy since the Second World War. Despite recent decades of apparent revival of neoclassical economics, we show empirically that the US economy was, and still is, run under Keynesian economic policies. Testing the core theoretical assumption of Keynesian economics -- that economic growth is driven by consumption demand through the Keynesian multiplier -- we find that the assumption can be refuted by empirical evidence, which shows a rising trend in consumption, but declining growth. We pinpoint the mathematical error in the original work which has led to the Keynesian fallacy. The Keynesian multiplier is not an indicator, but an investment hurdle, for economic growth; therefore increasing the multiplier reduces growth. We demonstrate how the false theory has led to the secular decline in the US economy and to the currently extreme, but ineffective, fiscal and monetary policies pursued by the US government.

Keywords: scientific, Keynesian, macroeconomics, multiplier

JEL Classification: B41, C20, E10, E12, E21, E61, H50