Say's Law implies that you can only have structural unemployment: the unemployment rate should never be above 4 percent for any real length of time. Even before the Great Depression this was obviously wrong, but no-one had a cogent explanation for why (see http://en.wikipedia.org/wiki/Kondratiev_wave for an example of the sort of tortured logic people tried to use to explain the recurring bouts of prolonged mass unemployment).
Keynes' General Theory was revolutionary because it attacked the foundations of the classical economics which were still taught but which clearly failed to describe the real world. His book outlined a number of reasons why economies don't stay in equilibrium: expectation changes, wage stickiness, the "animal spirits" of investors, etc.. You can take or leave his individual points (people have tried regressing them out), but at the end of the day he was a voice in the wilderness telling the world that deflation was bad at a time when conservative economists were advocating deflation as the solution (!!!). Secretary of the Treasury Andrew Mellon at the time was even saying the same sort of thing we hear from Austrians and Ron Paul today, that the solution to the Great Depression required the government to "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate [and] purge the rottenness out of the system."
This was actually monetary policy after 1928 and it only made things worse, tanking the economy and ultimately sparking a series of bank crises in 1931. Yet there is no explanation for how things could have gone so badly according to the classical economic theories which predate Keynes. Keynes' core insight was showing on a theoretical basis how economies can fall into suboptimal equilibria ("liquidity traps") characterized by high unemployment and deflation and fail to recover on their own. By the time Friedman made the remark that "we are all Keynesians now," he was pointing out that even Keynes' critics accepted his points as true by the 1970s, a time when the academic debate had shifted to whether fiscal policy (government spending) or monetary policy (interest rate manipulation) made for better policy.
> Keynes promotes printing of money and lots of government spending
This is the sort of thing you hear from people who haven't read him - Keynes did not champion indebtedness. The closest you will get is an allegory he presents in the General Theory of having the government bury money in mineshafts so the unemployed can dig them up.
Republicans trumpet this example as absurd because they think Keynes is telling us to pay people to dig holes. In fact, Keynes knew the example was absurd and was using it to parody his critics. Replace the moneybags with gold and you have exactly what happens to deflationary economies on the gold standard: as the value of gold rises in relation to the currency, the economy devotes more resources to digging up gold until the money supply expands enough that deflation stops. It is not hard to see from this example that embracing deflation is about as silly paying someone to dig holes in the ground, and actually much worse given the enormous social costs of mass unemployment you have to suffer in the meantime.
Keynes' General Theory was revolutionary because it attacked the foundations of the classical economics which were still taught but which clearly failed to describe the real world. His book outlined a number of reasons why economies don't stay in equilibrium: expectation changes, wage stickiness, the "animal spirits" of investors, etc.. You can take or leave his individual points (people have tried regressing them out), but at the end of the day he was a voice in the wilderness telling the world that deflation was bad at a time when conservative economists were advocating deflation as the solution (!!!). Secretary of the Treasury Andrew Mellon at the time was even saying the same sort of thing we hear from Austrians and Ron Paul today, that the solution to the Great Depression required the government to "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate [and] purge the rottenness out of the system."
This was actually monetary policy after 1928 and it only made things worse, tanking the economy and ultimately sparking a series of bank crises in 1931. Yet there is no explanation for how things could have gone so badly according to the classical economic theories which predate Keynes. Keynes' core insight was showing on a theoretical basis how economies can fall into suboptimal equilibria ("liquidity traps") characterized by high unemployment and deflation and fail to recover on their own. By the time Friedman made the remark that "we are all Keynesians now," he was pointing out that even Keynes' critics accepted his points as true by the 1970s, a time when the academic debate had shifted to whether fiscal policy (government spending) or monetary policy (interest rate manipulation) made for better policy.
> Keynes promotes printing of money and lots of government spending
This is the sort of thing you hear from people who haven't read him - Keynes did not champion indebtedness. The closest you will get is an allegory he presents in the General Theory of having the government bury money in mineshafts so the unemployed can dig them up.
Republicans trumpet this example as absurd because they think Keynes is telling us to pay people to dig holes. In fact, Keynes knew the example was absurd and was using it to parody his critics. Replace the moneybags with gold and you have exactly what happens to deflationary economies on the gold standard: as the value of gold rises in relation to the currency, the economy devotes more resources to digging up gold until the money supply expands enough that deflation stops. It is not hard to see from this example that embracing deflation is about as silly paying someone to dig holes in the ground, and actually much worse given the enormous social costs of mass unemployment you have to suffer in the meantime.