Oh Keynesian, Where Art Thou?
Almost everyone has something to say about the current crisis and the serious trouble our little greenback friend is in. We are about to be reminded that empires do not fall because of barbarians at the gates, wars of civilizations, or free trade. It's the inflation that kills them.
What is stunning about the current situation is the sudden disappearance from the stage of the not-so-long-ago fashionable Keynesian and monetarist doctrines. Even more surprising, most Keynesians and monetarists speak now in the language of fundamentals about micro problems and malinvestments. FULL ARTICLE
Comments (16)
Good article. I liked the branding of Fisher as Gandalf the Grey and Friedman as Gandalf the White. ^^
Published: April 8, 2008 8:21 AM
Excellent, straight-to-the-point, poignant article, as usually expected from dr Machaj :)
Published: April 8, 2008 9:30 AM
Very good summary, and now that he mentions it, yes, nary a peep from the Keynesians or monetarists.
Also, I could really do without the image of Milt Friedman in leather and purple being administered to by Lord Keynes and two disembodied, suit-coiffed hands. Who did you let get at the photoshop, Jeff?
Published: April 8, 2008 9:45 AM
Well done Mateusz! It is a great pleasure to have such a valuable economist here in Poland! All the best to You Mateusz.
Published: April 8, 2008 12:53 PM
The use of "socialism" with regard to the U.S. Federal Reserve doesn't seem appropriate. The stock of the Fed is owned by private parties (unlike Canada, where the stock is owned by the people/government), and while decisions are made by supposedly independent boards, these boards are selected from a wealthy banking elite by political officials. Human nature dictates that they will see the world through the lens of their experience, so it is most likely that their decisions will reflect a financial service sector worldview – hardly socialistic.
RE: "The endgame is to either abolish all controls, or go along the way of extreme interventionism and end up with full socialism, in which the government runs the economy." Are you arguing that these extremes are the only two options?
Published: April 8, 2008 12:54 PM
They are, in fact, the only extremes, as Mises demonstrated amply. Government upon erring must intervene further, erring further, intervening further, ad nauseam. Either this intervention is ended totally, or it continues until it reaches completion.
Published: April 8, 2008 1:13 PM
Actually isn't the image that accompanies this article a reference to "The Matrix"? Specifically, isn't this the point in the movie where the agents are essentially eating out the substance of Morphius, in an attempt to kill him.
Published: April 8, 2008 2:02 PM
Great article. I am looking forward to more such articles from Dr. Machaj.
Published: April 8, 2008 2:42 PM
"...the only extremes..." yes, but are two extremes the only options? Doesn't this argument assume a linear cause-effect-cause-effect universe? Chaos theory leads to alternative assumptions, and human behavior certainly demonstrates that it can be extremely hard to predict. In human development (both individual and group), it can be demonstrated that some external discipline/regulation can lead to greater freedom and fuller development of potential.
Published: April 8, 2008 3:00 PM
Not socialism but economic Fascism. Government dictates production and consumption but never assumes ownership and so assumes no blame. The owners of the disastrous results are big business and by extension "the market." Government says, "Not me, I only tried to help. Their implementation was all wrong."
Published: April 8, 2008 4:48 PM
What is unpredictable about the fact that governments cannot calculate properly and will tend to pile failure upon failure? Human action may be unpredictable, but by no means to the extent that it can flout economic reality. Unpredictability is an argument against central planning, not for it (even in moderate amounts.)
Published: April 8, 2008 5:39 PM
Virginia,
You say that, "it can be demonstrated that some external discipline/regulation can lead to greater freedom and fuller development of potential."
This is not entirely false. For example, I respect your polite use of words on this blog which I visit very often due to the administrators discipline over the users of this blog.
Please do not confuse "discipline" of private property owners with "discipline" of the all-mighty State, which asks you no questions before the wrath of monopolized police power is upon you (neither directly, or indirectly as is the case with debasing your salary with the State-monopolized and untouchable printing press).
Published: April 8, 2008 6:19 PM
The American left (which includes most of the "education system" and the media that is influenced by it) will blame the bust on tax cuts, or on too little regulation, or just on "greed".
Anything but accepting that the credit-money expansion caused the boom/bust.
The above happened in Britain at the end of the 1980's. Most people were brainwashed into accepting that "tax cuts" caused the bust, not one person in a hundred understood that the boom/bust was caused by monetary expansion - an expansion created in the hope of rigging the exchange rate of the Pound to the D.Mark.
There is another credit/money bubble in Britain right now - yet taxes have been greatly increased in recent years. I wonder how the left will explain the situation - perhaps they will blame the whole thing on "greed".
Published: April 8, 2008 6:28 PM
Inquisitor
What is unpredictable about the fact that governments cannot calculate properly and will tend to pile failure upon failure? Human action may be unpredictable, but by no means to the extent that it can flout economic reality. Unpredictability is an argument against central planning, not for it (even in moderate amounts.)
That's about right and that's why this whole artical is a straw dog.
We know that central planning can not predict the future. The same thing hold true in the Intelligent Design vs Natural Selection debate.
Now don't get me wrong. I believe in Intelligent Design. Take a look the cattle you eat or the apples that come from orchards that have been sprayed to increase crop yields.
Yeep, i believe in Intelligent Design so long as the cattle rancher has a shot gun and dogs when wolf's are around. And stop spraying those trees and tell me what they'll look like?
So, now were going to have the system we should have had all along? Yeeh, and your going let your poodle out to see if it can surrive in the wild too.
Published: April 9, 2008 8:12 AM
How many other economic theories must we endure till we have one based on honesty and individual responsibility? The lesson of the "tar baby" comes to mind with respect to government manipulation of the market.
Published: April 10, 2008 5:59 PM