crisis has provided much fodder for the Keynesians' cannon. They
hope it will usher in some sort of revival of their absurd ideas,
even though they never really went away in the first place. We are
told that the Fed-induced credit and housing bubbles were what happens
under a "free market." After they burst, pundits and politicians
went running for cover under Lord Keynes's cloak.
media followed them. The New Yorker, in its quest to make
the world safe for social democracy, never passes up an opportunity
to bash the free market, even when none exists. You can find the
latest pro-state piece in the January 11, 2010, edition, in which
John Cassidy writes about Richard Posner's recent conversion from
the "laissez-faire" economics of the Chicago School to
Keynesianism, which, according to Posner, "seems to have more
of a grasp of what is going on in the economy."
a step back. Posner, first of all, is not an economist. He is a
law professor, judge, and jurist known for applying economic concepts
to the study of law. For years he aligned himself with the Chicago
School, and his work focused on economic efficiency in terms of
legal concepts. He is known for the sort of hard-nosed pragmatism
embedded in the Chicago School from its dean, Milton Friedman. (To
those ignorant of the Austrian School, the Friedmanites are as close
as it gets to Wild West capitalism.) Posner, in addition to dealing
with the economic crisis, is also grappling with a crisis of faith.
piece contains some hilarious, if unintended, punchlines. The best
part was a quote from Posner's September 23, 2009, essay in The
New Republic, in which he declared his love for Keynes.
Among the good judge's reasons: he believes Keynes's General
Theory is "the best guide we have to the crisis."
funny for many reasons, not all of which I am able to list. First
of all, it's not readily apparent how the General Theory
could be a guide to anything — except perhaps intellectual masturbation,
which is how most academics get tenure. It's an abstruse book, largely
incoherent, full of illogic and aphoristic arrogance. Few people
read it anymore, and those who do (none of them Keynesians) are
seeking either a good laugh or a chance to sample some quaint British
The point is
that, since the Great Depression, liberal economic theory has strayed
from the General Theory and has undergone significant transformation.
One wonders, then, why Posner has gravitated toward a book that
even Keynesians have repudiated or revised to varying degrees. In
fact, why trust the Keynesians at all? Posner's logic is fuzzy:
"We have learned since September that the present generation
of economists has not figured out how the economy works," Posner
has written. "The vast majority of them were blindsided by
the housing bubble and the ensuing banking crisis; and misjudged
the gravity of the economic downturn that resulted…."
This is indeed
a baffling statement, since the "present generation of economists"
of whom Posner speaks includes Keynesians. In fact, they
were among the most clueless of the bunch when it came to the whole
debacle. But ignorance should be expected from mainstream types.
According to left-liberal economic history, Keynesianism died sometime
in the seventies, alongside the Phillips Curve. Since then, it has
lain dormant while we've been ruled by three decades of "unfettered"
laissez-faire, courtesy of the Friedmanites. Now, since the Chicago
School has been discredited, this means we should return to Keynesianism,
means something else: They're both wrong. Both the Keynesians and
the Chicagoans have failed. They don't understand money, inflation,
and, most important, business cycles. Friedman's monetarism was
crackpottery of the same mold as Keynes's "animal spirits."
Ought we to continue see-sawing between two failed schools of economic
theory? No way. It's a false choice. Both the public and the media
need to learn economics.
article proves this because, like most pieces of mainstream journalism,
it is ignorant of the Austrian School. Unlike Keynesians and Friedmanites,
Austrians saw the collapse coming and have been able to give a play-by-play
explanation of the carnage. Peter Schiff, for instance, mops the
floor with the financial pundits he debates, and other Austrian-minded
economic commentators — Ron Paul, Jim Rogers, Marc Faber — continue
to explain things cogently even as Beltway types spout the same
When it comes
to economics, The New Yorker is to the right of The Nation
and perhaps a bit to the left of The New Republic — you know,
those "liberal" magazines. Cassidy, for his part, practices
solid journalism: he interviews several Friedmanites, all of whom
come off as bumbling hacks. In one instance, Eugene Fama, a "finance
specialist" at the University of Chicago Booth School of Business,
declares he doesn't know what a bubble is: "I don't know what
a credit bubble means," he said. "I don't know what a
bubble means. These words have become popular. I don't think they
have any meaning." Cassidy writes that this man wasn't kidding.
Schooler who's ignorant of the boom-bust cycle? Is this any surprise?
For the past few decades, the Chicago School has done as much to
damage free-market economics as Keynesianism. Sailing under the
fraudulent flag of laissez-faire, they have pushed Fed-based monetary
policy and given socialists everywhere the ammo needed to deride
the market when it inevitably fails.
I really don't
want to knock the legacy of Milton Friedman. His shortcomings aside
(advocating a negative income tax), he was an amazing spokesman
for liberty. Now that he is dead, leftists delight in painting him
as the Satanic Machiavellian behind Reaganomics and the Pinochet
junta. Naomi Klein likes to think he was probably the one driving
the tanks through Tiananmen Square — or at least controlling them
by remote from the University of Chicago. Were he still alive, Friedman
would dispatch these lunatics with his wide grin and rapier debate
I will, however,
gladly knock John Maynard Keynes. He was a fraud through and through,
an academic huckster, the economic equivalent of a phrenologist.
The policy prescriptions gleaned from his quackery have destroyed
untold amounts of Western wealth and robbed millions of their savings
through debt, taxes, and inflation. This is not a legacy we need
to revive. It is one that we must bury.
the meantime, should stick to law and leave economics to the Austrians.
Wargas [write him mail]
is a writer who lives on Long Island, New York.