As the recession has deepened and the financial debacle has passed from one flare-up to another during the past seven or eight months, commentary on the economy’s troubles has swelled tremendously. Pundits have pontificated; journalists and editors have reported and opined; talk-radio jocks have huffed and puffed; public officials have spewed out even more double-talk than usual; awkward academic experts, caught in the camera’s glare like deer in the headlights, have blinked and stumbled through their brief stints as talking heads on TV. We’ve been deluged by an enormous outpouring of diagnosis, prognosis, and prescription, at least ninety-five percent of which has been appallingly bad.The bulk of it has been bad for the same reasons. Most of the people who purport to possess expertise about the economy rely on a common set of presuppositions and modes of thinking. I call this pseudo-intellectual mishmash vulgar Keynesianism. It’s the same claptrap that has passed for economic wisdom in this country for more than fifty years and seems to have originated in the first edition of Paul Samuelson’s Economics (1948), the best-selling economics textbook of all time and the one from which a plurality of several generations of college students acquired whatever they knew about economic analysis. Long ago, this view seeped into educated discourse and writing in the news media and in politics and established itself as an orthodoxy.
Unfortunately, this way of thinking about the economy’s operation, particularly its overall fluctuations, is a tissue of errors of both commission and omission. Most unfortunate have been the policy implications derived from this mode of thinking, above all the notion that the government can and should use fiscal and monetary policies to control the macroeconomy and stabilize its fluctuations. Despite having originated more than half a century ago, this view seems to be as vital in 2009 as it was in 1949.
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