I think this right here is the crux of our difference. Nothing I have read of Keynes suggests that his ideas are about extending government action beyond its primary responsibilities.
But Keynes either does not believe the government's responsibilities are solely to solve the free rider problem, or he thinks that a decline in aggregate demand is a result of the free rider problem, without providing an adequate explanation for why.
His 'paradox of thrift' theory makes a number of assumptions, like prices dropping discouraging production, people not being able to use alternate currencies to carry on trade when the supply of a particular currency deflates, gold production not increasing in reaction to a decline in the money supply, etc.
It's a sloppy theory, that aims to find evidence to fit a neat and highly speculative conclusion, rather than find a conclusion that fits the evidence.
I happily admit that Keynes model of the economy does not represent a number of things in real life, there are fair grounds to disagree with him, but don't forget that models are just that, simplified maps of reality the purpose of which is to try and capture certain relationships or behavior. Keynes did a lot for macro-economics, he basically founded the study. I just think criticisms of his ideas should be more constructive and not just used as a banner by metalists, rightwingers, libertarians etc to rage and condemn 'Progressives" or "Liberals" or 'Socialists' or 'fiat' or whatever their problem is. He certainly did not consider inflation a good thing.
I don't think Keynes' ideas can be criticized enough. They are immensely destructive.
As one example:The Second Coming of Keynes
You see, the fiscal stimulus might as well be literally filling holes, since according to Keynes's ridiculous understanding of how an economy works, it doesn't matter what the government spends money on; even digging up holes just to refill them would qualify as beneficial stimulus. You might think that this must not be literally true. "Keynes may have been wrong on some things," you may protest, "but no economist as prominent as him would believe something so foolish!" Read the man's words for yourself
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.
The above passage is not some off-hand note written to a colleague in a fit of academic speculation. It is part of Keynes's chief contribution to economics, upon which his reputation rests: The General Theory of Employment, Interest, and Money. I don't care how prominent, credentialed, or "accomplished" an economist is. If he says that burying cash in the ground can be a boon to society, then he should be immediately dismissed from public and academic discourse.
The simple fact that Krugman regards such a fellow as an exemplar of economic scholarship would be highly telling by itself. "Okay," you might think, "Keynes was a bit extreme. But Krugman himself wouldn't go so far as to believe something like that."
Wrong again. In April, Krugman actually bemoaned the fact that Obama's stimulus projects were under budget.
President Obama hails the fact
that stimulus projects are coming in ahead of schedule and under budget. Yay — but boo.
Ahead of schedule is good. Under budget — well, ordinarily that's a good thing. But the point of the stimulus is to increase spending!
That's right: Krugman would, all other things being equal, prefer government stimulus spending to be inefficient. He then goes on to quote the very same ridiculous passage from Keynes's General Theory, which I quoted above, but favorably. And the title of the piece in which he made this complaint? "Time for Bottles in Coal Mines."