Monday, 24 November 2008

They're all Keynesians now



After years of proclaiming the death of Keynesianism and the triumph of Friedmanomics it's fascinating to see how the market collapse has turned the most diehard opponents of government intervention in the economy and pump-priming turn into born again disciples of old John Maynard Keynes.

This is what Stephen Harper had to say this weekend:

“Let us remember what led to the Great Depression. It was not caused by a stock market crash. That was only the beginning,” he said. Governments of the time made a number of serious mistakes, including attempting to balance the books at all costs, he said, raising taxes and cutting spending at a time when a fiscal stimulus was “absolutely essential.”


Cutting spending is bad? Balancing budgets is a mistake during an economic downturn? Who knew? John Maynard Keynes did. Meanwhile, it appears that John Kenneth Galbraith, the great but long ignored Keynesian economist, is back in fashion with his seminal 1955 book The Great Crash: 1929 leaping off the shelves as people turn away from neo-classical economics. (So too rentals of the Depression-era classic, The Grapes of Wrath).

James Ga
lbraith, the son of JKG, points out that only a dozen of America's 15,000 economists predicted the current crisis. What does this mean for the "science" of economics? According to Galbraith: "It's an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless."


Back in 1994, when almost all economists were enthralled by Alan Greenspan along with the media and politicians, James Galbraith had the following to say of America's worship of the Federal Reserve and its chairman:

This is the Wizard of Oz theory, in which we pull away the curtain only to find an old man with a wrinkled face playing with lights and loud speakers.


As for Galbraith's prescription for the current crisis:
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