The Triumphant Return of Friedrich Hayek (Or how Keynesianism quickly fell out of favor)

Newsweek ^ | 11/29/2010 | Ruchir Sharma

[SeekAndFind]

Last year the consensus opinion was that we are all Keynesians now. Virtually everyone in the commentariat believed that John Maynard Keynes’s solution for the Great Depression—heavy government spending to resuscitate the economy—was also the answer to today’s global downturn. The first cracks in the consensus appeared with the outbreak of the fiscal crisis in Greece earlier this year. Across the developed world, critics began to argue that government spending had reached the point of diminishing returns, and was producing an anemic recovery that mainly benefited special-interest groups. And the electorate listened. From Europe to the United States, as voters started to reward candidates focused on fiscal discipline and less government intervention, Keynesianism quickly fell out of favor.

One key exception was U.S. Federal Reserve chairman Ben Bernanke. Dissatisfied with the gradual recovery and a high unemployment rate, he let it be known that he thought more stimulus was in order, and realizing that was not in the congressional cards, he decided to take monetary activism to a new level by offering an open-ended commitment to pump as much money into the system as required to meet the Fed’s dual mandate of maximum employment and price stability. This is the first time a Fed chairman has explicitly stated that monetary policy can turbocharge an economic recovery. Bernanke says he is doing everything Milton Friedman would have had the Fed do. Friedman, the father of monetarism, argued that the Great Depression was largely the result of a major contraction in money supply, and that such a severe economic outcome could have been avoided had the Fed held the money supply stable.

The public doesn’t buy it. There’s a growing backlash against the Fed’s monetary activism, for two reasons.

[allmendream]

“producing an anemic recovery that mainly benefited special-interest groups”

Exactly what the plutocrats want! Well maybe they would like a robust recovery that mainly benefited special-interest groups, but so long as the majority of what butter there is is being spread on THEIR part of the bread.

[Gondring]

And it just cost us a great republic to get here!

[Sgt_Schultze]

Virtually everyone in the commentariat believed that John Maynard Keynes’s solution for the Great Depression—heavy government spending to resuscitate the economy—was also the answer to today’s global downturn.Virtually everyone in the commentariat believed that John Maynard Keynes’s solution for the Great Depression—heavy government spending to resuscitate the economy—was also the answer to today’s global downturn.

It wasn't the make-work spending that got us out of the depression, it was spending on the war. We sent millions of otherwise normally employable Americans across the world and left behind other Americans who worked producing things to supply those sent abroad. Over the next several years, most of the manufacturing facilities of our competitors were destroyed. We spent the next decade helping to rebuild the factories of the world.

Maybe our cure is to again destroy the manufacturing operation of our competitors

[achilles2000]

The article displays an incompetent grasp of the history of economic theory and economic history. Nevertheless, who would have thought that Newsweek would publish any article questioning the Keynesian economic theory underlying Fed policy? This is also an indirect attack on the Obamalini regime’s economic policies, whether the author realizes it or not.

[SeekAndFind]

I would not expect Newweek to hire a writer who actually understood Hayek. Most of their writers are educated at left wing colleges that teach socialism as a virtue.

That a few of their writers are beginning to even recognize that it isn’t working is a small step in the right direction.

[SeekAndFind]

RE: Maybe our cure is to again destroy the manufacturing operation of our competitors

---

That is the classical broken-windows fallacy implemented on a large scale.

[MrB]

Keynesianism ?

Really, the problem is Kenyanesianism.

Youtube: Is Obama a Keynesian?

"NO! He was born in Hawaii!"

[cookcounty]

At he end of FDR's peacetime run, the unemployment was at 17.6%, which is somehow hailed as a great triumph. In the run-up to WWII, the military forces ballooned rapidly to 14 million personnel*, taking them out of the labor market, which brought down unemployment.

At the end of the war, the economy was sliding back rapidly to where it was in 1939-1940 as demobilization went rapidly forward, THEN there was a big election for the tax-CUTTERS which forced massive tax rate cuts and the economy began to rapidly improve.
++++++++++++++++

* That's 14 million troops drawn from a total population of 140 million as compared with today's population of 305 million. In today's terms, it would be like drafting 31 million into the armed forces.

[ponygirl]

Last year the consensus opinion was that we are all Keynesians now.

If I recall correctly, the headline after the election was, "We're all Socialists Now!" and Newsweak was happy.

[SC_Pete]

Hayek was always right. Ronald Reagan was a fan of Hayek. Markets always prevail no matter how distorted by government intervention.

ULTIMATELY THE SOVIET UNION COLLAPSED.

[detective]

While the article is a bit simplistic about the theories of Keynes, Freidman and Hayek this is by far the best article on the current economic situation in the MSM lately. The fact that it appeared in Newsweek, a publication usually full of leftist nonsense, is even more incredible.

Newsweek is losing millions of dollars a year and has lost many of its regular contributors. Maybe Newsweek is so desperate for content that they will actually let an accurate and well written article appear in their magazine.