52 Journal of Economic Perspective Some passages of The General Theory can be read to assert that involuntary unemployment is much more than a temporary cyclical phenomenon, that it is in the absence of remedial policies a chronic defect of capitalism. This was a atural enough view in the 1930s. In Alvin Hansen's American Keynesianism (e. g, Hansen, 1938)secular stagnation was a central proposition. Formally, however, the analysis of The General Theory is limited to a time period short enough that the changes in capital stock resulting from non-zero investment can be ignored Postwar Keynesians, for the most part, have not regarded protracted depression as a likely outcome. Chronic inflationary gaps could also occur, and alternations between excess-supply and excess-demand regimes were highly probable. Keynesian macroeconomics is two-sided. Deviations on both sides of Walrasian market-clearing can occur, though not necessarily with symmetrica symptoms. Excess demand in aggregate is mainly an"inflationary gap, gener ating unfilled orders and repressed or open inflation, rather than significant extra output and employment. Macroeconomic stabilization requires two-sided countercyclical demand management. In any case, habitual application of Keynesian remedies reinforces what- ever natural mechanisms tend to return the economy to its full employment growth path. Expectations that those remedies will be used contribute to the stability of that equilibrium path The Efficacy of Classical Adjustment Mechanisms: Interest Rates uppose that shocks to current real demands for goods and services create, at existing prices and wages, excess supplies of labor and capital services. What are the variables whose changes would avert or eliminate macroeconomic disequilibrium? The leading candidates are current prices, which include both wages of labor as well as prices of products, and interest rates, which involve future as well as current prices. In what follows, I shall set forth Keynesian skepticism regarding the efficacy of these classical adjustment mechanisms If these mechanisms respond instantaneously to shocks, no actual discrep ancy between demand and supply will occur or be observed. The shocks will be wholly absorbed in the market-clearing variables. This is the assumption of equilibrium business cycle theory and of the"real business cycles"approach. It this assumption that, among other things, enables new classical macro- economists to dismiss out of hand real aggregate demand shocks and to react In Tobin(1955), stagnation is one possibility, the stable solution of a non-linear model whose