The answer to every economic problem is one version of statism or another. If monetarism doesn’t succeed in “pump priming” with credit and inflation “stimulus” then surely the fiscal side will with “automatic stabilizers” and indiscriminate government expansion. These two grand economic strategies are often separated as if they are distinct sets of disparate theory; they are not. They represent two sides of the same coin, both being different means to accomplish redistribution as economic catalyst and forward agent.
Nowhere to be seen is a true capitalist solution of creative destruction led by true price discovery in actual free markets. Manipulation is the order of the day, to the point now where Janet Yellen doesn’t even want any markets to consider any negative potential anywhere. In short, she doesn’t want a market to express any kind of opinion except that which she would offer prior approval; to cease being a market altogether.
A lot of this fusion in statist proposals can be traced to the 1980’s and the rise of interest rate targeting as a “rational” means to address rational expectations theory as an excuse of the Great Inflation. As much as psychology may play an economic role, an even larger one was pre-empted by economic theory itself. While the story of the Fed’s lack of independence (“even keel”) is helpful in framing the operational aspects of banking toward the Great Inflation, the role of theory and bias itself should not be overlooked either.
Debate over the Great Depression had not been settled despite the disruption to traditional economics by Keynes’ narrowed conjecture. By the time of Milton Friedman’s “settling” the monetary side of the argument in elasticity in the early 1960’s, economic theory, borrowing heavily on implications from Keynes, had already turned a largely detached discipline of observation into what was so typical of that age, the dawning age of government management.
In terms of the Great Inflation, the rise of economic stewardship not only meant that monetary and Treasury officials believed they could “nudge” the economy toward a plane of higher “full” employment, they should actively seek that out. Of course, in this view, accepting lower levels of unemployment meant, as the Phillips Curve believed, also being comfortable with a higher level of inflation. Is it any wonder they lost control so spectacularly then?
At least at that time there was discussion about all of it; debate and robust scholarly disagreement. We have none of that today, especially as econometrics has established, in the media and politics for certain, that economics is an objective “science” that has been “settled.”
It is interesting that some anecdotal review of scholarship bears out exactly that kind of debilitating epistemological closure: there is only one set of economic beliefs and that is the only true set. There is no science where disagreement is totally excluded.
The rise in the debates began in the 1930s, presumably as economists suffered from pangs of Great Depression-inspired doubt. Keynes did most to increase the level of debate, while the strength of Marxist ideas must also have played an important part in encouraging a culture of cantankerousness. Paul M. Sweezy, North America’s leading Marxist economist, for instance, contributed to the debates in these journals.
The decline in debate then appears to have been associated with the emergence of a ‘neoliberal’ hegemony from the 1970s onwards. Keynesianism wilted, while Marxists were forced back into their niche publications. It is notable, for example, that Robert Pollin, arguably North America’s leading Marxist economist today, has only ever published one, six-page article in any of these journals.
Orthodox economics practices exactly that, which is why it can never be successful at creating any lasting and positive solutions. Economists spend their time now “debating” which regression conforms best to Okun’s Law or which “rule” should form the independent variable in which equation. Instead, they should be arguing about why someone had to invent secular stagnation to justify all these asset bubbles that appeared at exactly the moment soft central planning via redistribution went mainstream.
I think the author of the post is somewhat wrong in his explanation, particularly as it relates to Keynesianism “wilting.” In terms of its own branch of economics, it did certainly appear to fall away in the 1970’s and 1980’s as the Phillips Curve looked unsupportable, but that was only due to the grand acceptance and absorption of its largest principles into the dominant monetary strain – monetarism fused with Keynesianism. That is why debate began to drop, as these two “schools” essentially found they had far more in common and far less distance – the demand side devoted singularly to the mythical status of “aggregate demand.” A Keynesian devotee and a monetarist will never argue about activity for the sake of activity; waste is all good to them.
We see that in everything every central bank does today, which is supposed to be pure monetarism and is often presented as such (as if it were an actual alternative to the fiscal side). Every DSGE model of econometrics incorporates neo-Keynesian thought about everything, including some variation of the Phillips Curve and “pump priming.” You can read any number of Ben Bernanke’s scholarly papers, for example, and easily view the influence of such statism in their conclusions and even evidence. Keynes simply didn’t have time to follow his own implications to their logical ends – that monetarism held the “power” to make all his dreams come true.
In other words, economics has become religious in its rejection of anything outside the canon; a canon that includes John Maynard Keynes down to its core. In that sense, it was the worst possible result (and why the Great Inflation and the Great Recession and aftermath are mirrored images in a lot of ways) as dominant monetary and economic measures are ceaselessly faithful to nothing but redistribution in all its forms.