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Those familiar with the history of twentieth 20th-century economic thought know of the dominance of "Keynesian economics" following the Second World War. While John Maynard Keynes typically receives credit for transforming economics, much postwar Keynesian economics was actually developed by his interpreters and followers. Perhaps the single most important one of these followers was the Romanian born economist Abba P Lerner. Keynes's book The General Theory of Employment, Interest, and Money popularized the notion that market economies were prone to persistent unemployment. Keynes often receives credit for promoting government deficit spending as a means of combating unemployment. However, Abba Lerner...

When David Lipton, a promising economist, was finishing his graduate work at Harvard in the early 1980s, he faced one of those potentially life-changing choices. He had one job offer from the International Monetary Fund in Washington, the multinational institution that for 70 years has served as a lender of last resort and dispenser of orthodox economic advice to countries that get into financial trouble. There was also an offer of a teaching job from the University of Virginia. Unsure of which path to take, he turned for advice to an intellectually restless and charismatic assistant professor, a Frenchman named...

Keynesians continue to claim the recent recession and weak recovery have as their root cause a shortage of demand. If only the government would spend more money in the short run to augment demand from the private sector, we could fully recover. At that point, miraculously, the economy begins to generate sufficient demand on its own to replace the temporary government stimulus spending and the government can go back to business as usual. The problem with this scenario is that it misunderstands the role of demand in an economy and it also equates continuing, private sector demand with temporary government...

<p>As most readers are now aware, technology giant Apple Inc. has in the past few days been the recipient of juvenile attacks from U.S. Senators on both sides of the political aisle. Its alleged misdeed: the legal shielding of overseas earnings from corporate taxation stateside.</p>

New York Times columnist Paul Krugman calls out lots of folks for predicting that our fiscal and monetary policies would produce hyperinflation. Shouldn’t these people rethink their basic economic models, he asks? That’s a fair enough point. If your model was telling you that zero-interest rates or budget deficits at recent levels would produce very high price inflation, there’s probably something wrong with it. Yet the past couple of years have been truly extraordinary. Opportunities for revising the way you think about the economy have arisen over and over again. The only thing you needed to take advantage of these...

In a recent post I wrote: The evidence for the Keynesian worldview is very mixed. Most economists come down in favor or against it because of their prior ideological beliefs. Krugman is a Keynesian because he wants bigger government. IÂ’m an anti-Keynesian because I want smaller government. Both of us can find evidence for our worldviews. Whose evidence is better? IÂ’m not sure itÂ’s a meaningful question. My empirical points about Keynesianism wonÂ’t convince Krugman. His point donÂ’t convince me. I am not saying that we will never get any kind of decisive evidence on the question. IÂ’m saying...

America's economic recovery will be weaker than feared next year and do little to bring down unemployment until at least 2013, according to new forecasts from the Federal Reserve. The world's biggest economy will grow between 3pc and 3.6pc, less than the Fed's June forecast of 3.5pc to 4.2pc. In turn, unemployment, currently 9.6pc, will only edge lower to between 8.9pc and 9.1pc next year. In June, the central bank had forecast it would dip below 9pc in 2011. The new forecasts were revealed in the minutes of the meeting of the Fed's Open Market Committee, when it decided to...

Come Jan. 1, Democrats will officially end their romance with John May nard Keynes. That's the day they hope to sock America with the largest tax hike in years, all in the name of their supposed new love: deficit-cutting. But don't expect that fling to last long, either; if you want to know who's really won their heart, ring Joe the Plumber. Or Robin Hood. They'd know. Ever since President Obama took office, and Dems took Congress, they've insisted the right medicine for our ailing economy was deficit spending. Last year's nearly $1 trillion stimulus was all borrowed money --...

To those of us who first encountered the dismal science of economics in the late 1970s and early 1980s, the current debate on fiscal policy in the western world has been – no other word will do – depressing. It was said of the Bourbons that they forgot nothing and learned nothing. The same could easily be said of some of today’s latter-day Keynesians. They cannot and never will forget the policy errors made in the US in the 1930s. But they appear to have learned nothing from all that has happened in economic theory since the publication of their...

We live in an era of unparalleled confusion on monetary and economic issues. It’s almost like a shoot-out among the economists in the Old West, except that here you can’t tell the good guys from the bad guys. You read so many conflicting reports, editorials, and newsletters that it’s easy to get befuddled. There are those who say inflation, those who shout deflation. Some say print more money, others say halt the printing presses. There are those who say bail them out, and the others who say let them fail. There are those who say gold is going up to...

Real GDP boomed in Q4 and suggests continued strong growth in 2010. If this is a "weak recovery" or "the new normal," please give us more. The primary reason for the V-shaped recovery is that monetary policy has been extremely loose the past couple of years and, with the normal lag time, is now having a huge impact on the economy. The "siege" is over, but some pessimistic analysts seem to have caught a case of "economic Stockholm Syndrome," afraid to admit improvement. Although inventories accounted for a large share of growth in Q4, this was due to fewer inventory...

John Maynard Keynes is fashionable again, thanks at least in part to President Barack Obama. Obama's economic team features economists like Larry Summers, whom the BBC termed a "pugnacious Keynesian." Yet Obama's team maintains a centrist reputation within academia, avoiding the liberal label despite their Keynesianism. This reconciliation of the ideas of Keynes, the father of progressive economics, with the mainstream would not have been respectable 30 years ago. "Keynes has become a dirty word to many people," wrote Robert Skidelsky, the noted biographer of Keynes, in the August 1981 issue of The American Spectator. "The easiest way for any...

NEW YORK -- "The era of big government is over." So said President Bill Clinton more than 12 years ago in a statement that was never accurate. The government stayed big. And after the recent -- and justified -- interventions to prop up some big U.S. financial institutions, it's appropriate to say the era of government is now bigger than ever. It's going to stay that way for a long while, regardless of who becomes the next president. Neither of the presumptive major candidates -- Barack Obama and John McCain -- is a traditional, hands-off economic conservative. That's a...

PALO ALTO, Calif.--Milton Friedman was one of the very few intellectuals with both genius and common sense. He could express himself at the highest analytical levels to his fellow economists in academic publications and still write popular books such as "Capitalism and Freedom" and "Free to Choose" that could be understood by people who knew nothing about economics. Indeed, his television series, "Free to Choose," was readily understandable even by people who don’t read books. Milton Friedman may well have been the most important economist of the 20th century, even if John Maynard Keynes was the most famous. No small...

Doug Bandow is a senior fellow at the Cato Institute. "We're all Keynesians now," declared President Richard M. Nixon when he surrendered his fiscal policies to liberal orthodoxy. Gov. Arnold Schwarzenegger did much the same with his recent executive order calling for draconian cuts in the emission of "greenhouse gases" linked to global warming. "The debate is over," he claimed. The issue of global warming, though presented as a matter of scientific certainty, is actually highly controverted. Although the planet almost certainly is warming, how much of that is due to humanity -- which contributes only about .3 percent of...

Not long ago, Republicans were trying to pass a balanced budget amendment to the Constitution. Their worry was that large deficits would hamper growth and prosperity. At the same time, Alan Greenspan, Chairman of the Federal Reserve, preached deficit reduction too. He saw it as the solution not only to the country’s economic downturn, but also to its more long-term economic problems. Meanwhile, Democrats were skeptical. They believed that deficit spending had brought the country out of the Great Depression, and Democratic economists were overwhelming Keynesians. As such, they feared that raising taxes and lowering government expenditures to try to...

Why are Florida's hurricanes a "plus"? It's simple. According to St. Petersburg Times reporter Joni James, "Construction creates thousands of jobs, insurance provides for billions in consumer purchases, and new facilities built to higher standards might help offset future storm-related losses." This kind of reasoning, often put forth by poorly trained economists, doesn't even pass a simple smell test. Think about it this way. Using Cochrane's statement, if "from an economic point of view, it (hurricanes) is a plus," would the country have been even better off if the entire East Coast shared Florida's damage and destruction? If it would...