I enjoyed your and Alex Blumberg's January 29th report on the resurgence of Keynesian economics. In your list of anti-Keynesian schools of thought, though, you missed an important group of scholars: the Austrian economists, whose most prominent exponent was F.A. Hayek. Unlike Keynesians and monetarists, Austrians reject the idea that recessions are due chiefly to aggregate demand being too low. Instead, Austrians focus on the time it takes to correct any misdirections of resources caused by distortions in the complex pattern of individual prices.
Sadly, almost no one today has heard of - and even fewer people pay serious attention to - the Austrian theory. But it was once influential. We have it on the authority of the late Sir John Hicks, himself a Nobel laureate economist, that in the mid-1930s "the new theories of Hayek were the principal rival of the new theories of Keynes."
Keynes's theory cannot adequately explain the experience of the 1970s. Perhaps it's time to look again, not at Keynes's work, but at Hayek's.
Sincerely, Donald J. Boudreaux Chairman, Department of Economics George Mason University Fairfax, VA 22030
Goldman Sachs has released a report that the economy is going deeper into recession, not recovering. They have also predicted that the bank bailout will exceed $4 trillion. The Washington Post headline this morning is that the economic signs are getting worse, not better. Michigan is officially the hardest hit state by this economic downturn, but California is right behind. Cut backs are taking place everywhere from Starbucks to colleges nationwide.
Now lets be clear about something. Government has been pro-active at the first signs of an economic downturn. There never was a period of "do nothingism" under Bush. Instead we got nationalization and bailouts. Pointing out the failure of our current policy path isn't condemning Obamanomics before it can get off the ground. The current policy path of Keynesian activism has been more or less followed from the beginning. When will Washington learn that more of the same will not work?
As readers of this blog know, neither Steve nor I endorsed Ron Paul in his presidential bid even before the negative press concerning his newsletter came out. But I think Ron Paul has been the only political actor I have heard who understands what is going on. As he recently said, politicians and policy makers in Washington think they see a house on fire and they are providing water to put the fire out, but instead what they are doing is pouring gasoline on the fire. As I have said several times on the blog, we are turning a "crisis" into a catastrophe through the policy actions taken.
President Obama --- as a basketball junkie remember the great words of John Wooden "Failure is never fatal, but failure to change may be." You were elected on a platform of 'hope and change'. Shake the entire establishment up again as you did during your campaign, and resist the pouring of gasoline on a fire, and instead take steps to establish a policy regime of fiscal and monetary responsibility --- a regime which fits with the dignity of the individual and a government of a free and responsible people.
The current approach just ain't working. Time for a change.
An occasional post of insightful, funny, or outrageous quotes from Human Action.
A surgeon tells a patient who considers submitting himself to an operation that thirty out of every hundred undergoing such an operation die. If the patient asks whether this number of deaths is already full, he has misunderstood the sense of the doctor's statement. He has fallen prey to the error known as the "gambler's fallacy." Like the roulette player who concludes from a run of ten in succession that the probability of the next turn being black is now greater than it was before the run, he confuses case probability with class probability.
Back in the banking crisis of 1907, J.P. Morgan got all the major
bankers into one room and forced a kind of reorganization on all of
them. We need the same today -- a giant reorganization of the banks, in
which their shareholders lose what little value they have left, their
creditors get paid 20 cents or so on the dollar, and their assets are
written down to about 20 percent of their face value. In effect, it's
an industry-wide reorganization under bankruptcy. This way, bank
balance sheets are cleared up, there's no run on any one bank, everyone
starts anew, and taxpayers aren't left holding the bag.
extent Geitner is serious about preserving a truly private financial
system, this kind of broad-based reorganization of the entire sector in
the shadow of bankrutpcy, seems to me to be the best alternative at
"We have to make tough choices and smart investments today so that
as the economy recovers, the deficit starts to come down. We cannot
have a solid recovery if our people and our businesses don't have
confidence that we're getting our fiscal house in order. That's why our
goal is not to create a slew of new government programs, but a
foundation for long-term economic growth.
"That also means an economic recovery plan that is free from
earmarks and pet projects. I understand that every member of Congress
has ideas on how to spend money. Many of these projects are worthy, and
benefit local communities. But this emergency legislation must not be
the vehicle for those aspirations. This must be a time when leaders in
both parties put the urgent needs of our nation above our own narrow
Well then Mr. President, I await your veto. If not, I await your explanation of what has changed since the 8th. At the very least, I await you leading by example and asking Congress to remove the funds forthat are highly likely to go to groups like [UPDATED 845pm, as our commenter below is correct. I misread an online piece earlier today.] ACORN that are in the bill.
Somehow, I think that I should not be holding my breath until we get any of those.