People [believe that future market interactions with others will be less capable of satisfyng their wants]
That was a very useful exercise since it helped me identify the key point of disagreement between you an Keynesianism. If I'm right, you're coming at this from a goods market perspective i.e. "I, a typical consumer am not interested in any of these goods at these prices, so I'm going to not buy so much", whereas the Keynesians are blaming this kind of attitude: "I, a typical consumer am fearful of the future. While I want to buy stuff, I'd better start saving for the future instead in case I lose my job" and it's the saving that triggers the recession (money flows out of the economy into savings, this fools people into thinking they are poorer and the death spiral begins).
A couple of other contextual points: 1) The monetary stimulus that Keynes recommended was based on governments running deficits, not necessarily spending more. Cutting taxes works just as well
2) Keynes was trying to reduce the magnitude of boom-bust swings, not increase trend economic growth rates. As such he prescribed the opposite behaviour in boom times, have government run surpluses to tamp down consumer exuberance. This is less widely known since politicians only ever talk about Keynes during recessions, when it gives them intellectual cover to spend lots of money.
3) The Keynesian consensus is not universal. Arnold Kling's "recalculation" story is much closer to your picture, and you'll notice he doesn't advocate stimulus, but rather waiting to see how people adjust to the new economic circumstances.
4) GDP is the preoccupation of macroeconomists. Microeconomists (like me) care much more about allocative efficiency, which is to say to what extent are things in the hands of the people who value them most? So there's a whole branch of the profession to which your initial GDP-centrism comment does not apply.
It's points 3 and 4 in particular that lead me to object to your claim that economists are obsessed with GDP. To my way of thinking, it's politicians that are obsessed with GDP because they believe their chances of re-election are tied to economic growth and unemployment figures. So they spend a lot of time asking economists how to increase GDP, and therefore economists more often than not to discuss GDP when they appear in public.
...That was a very useful exercise since it helped me identify the key point of disagreement between you an Keynesianism. If I'm right, you're coming at this from a goods market perspective i.e. "I, a typical consumer am not interested in any of these goods at these prices, so I'm going to not buy so much", whereas the Keynesians are blaming this kind of attitude: "I, a typical consumer am fearful of the future. While I want to buy stuff, I'd better start saving for the future instead in case I lose my job" and it's the saving that trigge
This thread is for the discussion of Less Wrong topics that have not appeared in recent posts. If a discussion gets unwieldy, celebrate by turning it into a top-level post.