I was in my first year of graduate economics in 1965 when the pillar of conservative economics, Milton Friedman, famously said, “We are all Keynesians now.”
Well, that settles that, I mistakenly thought.
Turns out, the news was inconvenient for conservatives because Keynesian economics justifies government intervention when the economy goes to hell in a handbasket.
Conservatives don’t like government intervention unless it is to subsidize the oil industry. So they have resurrected an older economic theory that says problems solve themselves – the Austrian School of Economics. Our own congressman, Rep. John Campbell, espouses it, along with presidential candidate Ron Paul and CNBC commentator Rick Santelli, who coined the term “Tea Party.” Lots of so-called supply-siders embrace it, too.
The Austrian School is based on the pseudo-science of praxeology. If that doesn’t scare you or put you to sleep, you’ve probably forgotten those 8 a.m. Saturday classes you had as a freshman. Essentially, praxeology argues that individuals behave rationally and everything will be OK if you just get out of their way.
Check your own family to test this theory. I have, and, while I love my wife and children dearly, they have shown over the years that there are flaws in the Austrian theory of rational behavior.
A second problem for conservatives is that facts get in the way of their theory. That’s what happened in 1929, when the Depression hit. The Austrian School promised that if we did nothing, a gale of creative destruction would automatically fix the economy (see Austrian economist Joseph Schumpeter for details).
That’s pretty much what President Hoover did back then – let markets run their course. Well, we certainly got the destruction the Austrians promised – but facts are facts, and the fact is the economy didn’t fix itself.
Keynes then came along with a new theory that actually explained what the Austrian School could not. Most economists have been fact-based number crunchers ever since.
In rebuttal, the Austrian School argues we can ignore the facts. The real world, they say, is too complex to accurately measure facts. Now that conservatives can ignore the facts, it is very difficult to argue with them. We liberals have the same problem with conservatives when we want to bring up evolution or climate change.
Me, I don’t believe every economic problem solves itself, and I’m old enough to remember Sgt. Joe Friday on “Dragnet”: “Just the facts, ma’am.”