The point of this is to say that the large majority of economists that are prominent today come from the Keynesian school of economic thought. When we hear people talk about a huge majority of advisers and academia folks agreeing on the best way to get us out of whatever malaise we are in, it is because most are believers in the Keynesian school of thought. Those that follow the Austrian school of economic thought were proven to be correct about a lot of the causes of the Depression. Those that are Keynesians believe that we can stimulate demand (and therefore employment and production) by embarking on massive government spending programs. While these programs may make us feel good in the near term because we can see that our government is trying to do something, the long-term consequences of such programs is astounding.
I am hopeful that the Austrian school of economic thought will start to make its way into the mainstream in 2009.
It took a little longer than I had hoped but it seems like the mainstream media is now starting to focus on the effect that deficits have on future production. That The Economist magazine has printed an article about the downfalls of Krugman/Keynesian fiscal stimulus and debt is no small deal.
Here is a piece of the article:
Rising government debt is a Ponzi scheme that requires an ever-growing population to assume the burden—unless some deus ex machina, such as a technological breakthrough, can boost growth. As Roland Nash, head of research at Renaissance Capital, an investment bank, puts it: “Can the West, with its regulated industry, uncompetitive labour and large government, afford its borrowing-funded living standards and increasingly expensive public sectors?”
The problem with debt, of course, is that it needs to be paid back.
The Wall Street Journal also just published this editorial titled, "The Keynesian Dead End". Here is an excerpt:
The larger lesson here is about policy. The original sin—and it was nearly global—was to revive the Keynesian economic model that had last cracked up in the 1970s, while forgetting the lessons of the long prosperity from 1982 through 2007. The Reagan and Clinton-Gingrich booms were fostered by a policy environment for most of that era of lower taxes, spending restraint and sound money. The spending restraint began to end in the late 1990s, sound money vanished earlier this decade, and now Democrats are promising a series of enormous tax increases.
One of my favorite economists is Ludvig Von Mises (1881-1973). Here is a pertinent quote from him:
There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.
Kudos to The Economist and WSJ for letting these articles fly.
Thanks for reading.
James
