This is a good news, bad news kind of deal. Starting in 1933, the United States' economy was taken over by the so-called "modern economists" of various stripes. First it was the Keynesians. From Wikipedia:
(start of quote) Keynesian economics (pronounced /?ke?nzi?n/, "kane-zeean"), also Keynesianism and Keynesian Theory, is an economic theory based on the ideas of twentieth-century British economist John Maynard Keynes. The state, according to Keynesian economics, can help maintain economic growth and stability in a mixed economy, in which both the public and private sectors play important roles. Keynesian economics seeks to provide solutions to what some consider failures of laissez-faire economic liberalism, which advocates that markets and the private sector operate best without state intervention. The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936.
In Keynes's theory, some micro-level actions of individuals and firms can lead to aggregate macroeconomic outcomes in which the economy operates below its potential output and growth. Many classical economists had believed in Say's Law, that supply creates its own demand, so that a "general glut" would therefore be impossible. Keynes contended that aggregate demand for goods might be insufficient during economic downturns, leading to unnecessarily high unemployment and losses of potential output. Keynes argued that government policies could be used to increase aggregate demand, thus increasing economic activity and reducing high unemployment and deflation. Keynes's macroeconomic theories were a response to mass unemployment in 1920s Britain and in 1930s America. (end of quote)
This pernicious doctrine has since been countered by, first, the monetarists, led by Milton Friedman. Again from Wikipedia:
(start of quote) Monetarism is a set of views concerning the determination of national income and monetary economics. It focuses on the supply of money as the primary means by which the rate of inflation is determined.
Monetarism today is mainly associated with the work of Milton Friedman, who was among the generation of economists to accept Keynesian economics and then criticize it on its own terms. Friedman and Anna Schwartz wrote an influential book, Monetary History of the United States 1867-1960, and argued that "inflation is always and everywhere a monetary phenomenon." Friedman advocated a central bank policy aimed at keeping the supply and demand for money at equilibrium, as measured by growth in productivity and demand. The monetarist argument that the demand for money is a stable function gained considerable support during the late 1960s and 1970s from the work of David Laidler. The former head of the United States Federal Reserve, Alan Greenspan, is generally regarded as monetarist in his policy orientation. The European Central Bank officially bases its monetary policy on money supply targets. (end of quote)
Keynesianism was further countered by the Supply-siders. Again we turn to the ever-helpful Wikipedia:
(start of quote) Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created using incentives for people to produce (supply) goods and services, such as adjusting income tax and capital gains tax rates. This can be contrasted with Keynesian economics (or "demand side economics"), which argues that growth can be most effectively managed by controlling total demand for goods and services, typically by adjusting the level of government spending. Supply-side economics is often conflated with trickle-down economics, now a derogatory term given to right-leaning economists' views.[1] The term supply-side economics was coined by journalist Jude Wanniski in 1975, and popularized the ideas of economists Robert Mundell and Arthur Laffer.
The typical policy recommendation of supply-side economics is the reduction of marginal tax rates. According to proponents increased private investment generally brings higher productivity, which increases economic growth, and lowers costs for consumers. (end of quote)
These somewhat similar monetarists and supply-siders have penetrated even into the previous heart of Keynesian darkness, the Ivy League. An extremely influential economist named Robert Glenn Hubbard became George W. Bush's chief economic advisor and was instrumental in achieving the tax cuts early in Bush the Younger's administration. He was put forward as a leading contender to replace Alan Greenspan as the Chairman of the Federal Reserve. Ben Bernanke got the job.
Here we have two examples of how economics has changed in the United States, in a roundabout way. I offer you as evidence these two videos created by the students of the Columbia Business School. Bear in mind: these videos don't come from some university in "flyover country" where you might expect an outpost of freedom, but from Columbia, in, as the Pace ads would say, New York City!
The one I find most entertaining is this takeoff on "Every Breath You Take":
Another is this takeoff on "Ice, Ice, Baby":
There are others, including a takeoff on "Baby Got Back" entitled "Baby Got WACC." WACC is Weighted Average Cost of Capital. Now, bear in mind that these are lampoons created by students. That isn't really Dean Glenn Hubbard, and Hubbard bears no ill-will towards Ben Bernanke - at least none that he'll admit to. The real R. Glenn Hubbard is a typical mild-mannered economist.
Oddly enough, his brother, Gregg Hubbard, is the keyboard player with the band Sawyer Brown. Weird, huh? Anyway, the popularity and influence of this Glenn Hubbard fellow, in the previously Keynesian Ivy League, is astounding. That's the Good News. Now for the Bad News.
All of these economists, regardless of their differences, share a core agreement about the modern economy. They all support the Federal Reserve's control of the money supply and interest rates. Not one of them supports the ideal of a free market in capital, in which free people, acting in a free market, determine what money should be, how much of it should be created, and what interest rates it should fetch in the free market. That's the Bad News. There are no "mainstream" free market economists. None. Nada. That's because in order to even be in that "mainstream," they must oppose free market capitalism. Oh, sure, some of them will claim to support the free market - so long as that free market excludes the market in money itself. But seriously, how can we have free market capitalism without a free market in capital? We can't. When the brain-dead talking heads on CNBC's Larry Kudlow show all claim to support free market capitalism as the best way to achieve economic growth, they're all, every single one of them, lying.
So I'm left with quite a quandary. Should I be glad that the Monetarists and Supply-siders are winning out over the Keynesians? Or should I dispair that, ultimately, it doesn't matter; that they're all essentially the same, and are only arguing around the edges of the real issue of freedom v. political control? Danged if I know. Anyway, the videos do offer an entertaining break from the dismal grimness of it all.
