Macroeconomics took an ill-advised detour into Keynesianism and has never found its way back. From Alasdair Macleod at goldmoney.com:
The father of modern macroeconomics was Keynes. Before Keynes there were macro considerations, which were firmly grounded in human action, the personal preferences and choices exercised by individuals in the context of their own earnings and profits. In order to give a role to the state, Keynes had to get away from human action and devise a positive management role for central planners. This was the unstated purpose behind his General Theory of Employment, Interest and Money.
To this day, his followers argue that macroeconomics is different from individual actions, and the factors that determine the behaviour of individuals are not the same as those that determine the wider economy. This article explains why it cannot be true, why modern macroeconomic beliefs are fundamentally flawed, and why interventionism has not only failed to produce overall benefits for the wider public, but has been at an unnecessary economic cost.
The basic fallacy
Last week, Martin Wolf (the FT’s chief associate editor and chief economic commentator) presented a programme entitled Economics 101 on BBC Radio 4, in which he raised the question as to whether a democracy can function when voters have little idea of how the economy works and why there has been so little effort to teach economics in schools.[i] The independent economists interviewed, Larry Summers and Joseph Stiglitz, and Wolf himself are strongly pro-Keynesian, and the programme made no mention of the fact that there are different schools of economic thought. The question as to what information should be given to the public and crammed into the minds of schoolchildren was never addressed, and it was clearly to be the Keynesian view.
Wolf is probably the most senior economic commentator in the British media, and one can therefore understand why the BBC, a state-owned broadcaster whose specific mandate is to be unbiased in matters of opinion, thought that by getting such a senior figure to present the programme, and for him to invite well-known economists to be interviewed, that there was no bias. The vast majority of listeners were similarly likely to be unaware of any bias. Furthermore, Wolf himself, being Keynesian, probably thinks that any other economic theory is simply wrong.
To continue reading: Macroeconomics Has Lost Its Way
