On my recent travels to the lovely north west of England, I picked up (in the book town of Sedbergh) The New Economics: Keynes' Influence on Theory and Public Policy, edited by Seymour Harris. It's a 1947 collection of essays in memory of the recently deceased Keynes. The contributors include Roy Harrod, Wassily Leontief, Joan Robinson, Paul Samuelson, James Tobin, James Meade – and more – a star-studded list. The one that caught my eye first, however, was the contribution by Joseph Schumpeter.

In his introductory essay Seymour Harris explains that most of the economists whose essays he selected are supporters of Keynes, but he spiced the mix with a few friendly critics. Schumpeter is one of these, clearly holding Keynes in warm personal regard. (As indeed all of the contributors do – Keynes seems to have been a thoroughly engaging person as well as a genius.) The essay assesses the earlier works such as the Treatise on Money but culminates in an assessment of The General Theory. And I think Schumpeter's central criticism is completely relevant to the current debate about fiscal policy.

The point is this. Schumpeter notes that Keynes's model of the economy ignores the long term. (Famously, Keynes said “In the long run we are all dead.”) But 'long term' in reality translates into relatively short term dynamics. In this essay, he writes: “It does not seem to be realised sufficiently how very strictly short-run his model is and how important this fact is for the whole structure and all the results of The General Theory.” This excludes from consideration all “the phenomena that dominate the capitalist process.” The examples he gives are investment in new equipment, changing the labour-capital mix in production, changes in the composition of total output, changes in competitive intensity in a particular industry, and so on. Needless to say, Schumpeter thought such issues too important to exclude, and argued that the failing made Keynesian economics good only for thinking about the next year or two.He concludes, though: “It is possible to admire Keynes, even though one may consider his social vision to be wrong and every one of his propositions to be misleading.”

Turning to the current debate about how far and how fast government deficits should be cut, it's clear to me that (a) macroeconomists don't know, or they wouldn't be shouting at each other so much; and (b) the disagreement turns on the trade-off between the potential short term contractionary impact and longer term dynamics. I haven't seen either side of the debate address this directly – the swingers of big axes should be explaining the transmission mechanism for improved growth after the very short term, in the context of ultra-low long term real interest rates; the loud Keynesians need to explain how we can get beyond a series of short terms in which fiscal contraction would be too damaging to ensure the economy doesn't fall into a debt trap. I do keep an eye on the macro debates on VoxEU and Economist's View but might have missed a magisterial overview of this issue – do let me know if anyone else has spotted it.