If you don't agree with me and other Keynesians, fine. Macroeconomics is tricky, there's not nearly as much data as we'd like, and it's not like there's a "grand unified theory of macro" anyway - presumably lots of processes are operating, etc. etc. Fine.
Bob Roddis writes on Bob Murphy's blog: "I’m turning purple from holding my breath waiting for the very first Keynesian/Krugmanite/inflationist/spendthrift analyst who understands that the universal Austrian criticism of all their nefarious schemes is that they CRACK THE THERMOMETER of economic knowledge by disrupting and distorting the pricing process... The cure always remains the same: FIX THE THERMOMETER and allow it to work."
Why is it so hard to convince some Austrians that we don't need Austrian economics to tell us what we already know about market efficiency and the primacy of the price mechanism in resource allocation, growth, and prosperity. It is precisely the case of Keynesianism that we should "fix the thermometer and allow it to work". The Keynesian argument is essentially this:
(1.) Interest rates operate as a price in two markets - to simplify, we can call them the market for cash and the market for loanable funds.
(2.) This means that a particular interest rate may not clear both markets simultaneously. If you write it out, this isn't a disequilibrium - it is an equilibrium. To put it differently, arbitrage can't fix it.
(3.) Since we have a stable price that is not equal to the market equilibrium price, we have deadweight loss. It is misleading to think of this as a disequilibrium phenomenon: it is a stable equilibrium phenomenon and can be thought of as an "interest rate wedge" (like the more traditional "tax wedge").
This price distortion does what all price distortions do: it prevents entrepreneurs form effectively allocating resources.
Why, why, why do people like Bob Roddis (and many others) accuse us of ignoring what is in fact the central problem of Keynesian economics?
Brad DeLong points us to Keynes:
"Whilst... the enlargement of... government... in the task of adjusting... the propensitv to consume and the inducement to invest, would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism, I defend it... as the only practicable... condition of the successful functioning of individual initiative...
[I]f effective demand is deficient, not only is the public scandal of wasted resources intolerable, but the individual enterpriser who seeks to bring these resources into action is operating with the odds loaded against him. The game of hazard which he plays is furnished with many zeros, so that the players as a whole will lose if they have the energy and hope to deal all the cards. Hitherto the increment of the world's wealth has fallen short of the aggregate of positive individual savings; and the difference has been made up by the losses of those whose courage and initiative have not been supplemented by exceptional skill or unusual good fortune. But if effective demand is adequate, average skill and average good fortune will be enough..."
One might also note:
"To put the point concretely, I see no reason to suppose that the existing system seriously misemploys the factors of production which are in use. There are, of course, errors of foresight; but these would not be avoided by centralising decisions. When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down.
Thus I agree with Gesell that the result of filling in the gaps in the classical theory is not to dispose of the 'Manchester System', but to indicate the nature of the environment which the free play of economic forces requires if it is to realise the full potentialities of production. The central controls necessary to ensure full employment will, of course, involve a large extension of the traditional functions of government. Furthermore, the modern classical theory has itself called attention to various conditions in which the free play of economic forces may need to be curbed or guided. But there will still remain a wide field for the exercise of private initiative and responsibility. Within this field the traditional advantages of individualism will still hold good."
This is why many leftists complain that we are (and why Brad DeLong proudly wears the label of) "neo-liberals". "Neo-liberalism" as it is understood by the left has some less savory aspects to it as well, but the reason why this is hurled at prominent Keynesians is that the argument is one that is grounded in market economics.