It Is Not Just John Maynard Keynes, It Is Milton Friedman Who Is Being Thrown Over the Side
Any time that the views of Milton Friedman are denounced as those of a left-wing semi-socialist kook, something has gone very, very wrong.
Has something gone very very wrong? Yes, it has.
Landon Thomas covers the train wreck, but does not include my observations about not Keynes but Friedman:
Cuts in Britain Ignore Views of Keynes: The British economist John Maynard Keynes may live on in popular legend as the world’s most influential economist. But in much of Europe, and most acutely here in the land of his birth, his view that deficit spending by governments is crucial to avoiding a long recession has lately been willfully ignored.... George Osborne, chancellor of the Exchequer, delivered a speech on Wednesday that would have made Keynes — who himself worked in the British Treasury — blanch. He argued forcefully that Britons, despite stumbling growth and negligible bank lending, must accept a rise in the retirement age to 66 from 65 and $130 billion in spending cuts that would eliminate nearly 500,000 public sector jobs and hit pensioners, the poor, the military and the middle classes because of what he insisted was the overwhelming need to reduce the country’s huge budget deficit.... [A]cross Europe, where the threat of a double-dip recession remains palpable, what is most surprising is not simply that governments from Germany to Greece are slashing public outlays but that the debate hinges more on how fast to do so....
“Everything Keynes established about the primacy of maintaining demand at a steady pace is gone,” Brad DeLong, a liberal economist and blogger at the University of California, Berkeley, said mournfully. “Europe obviously thinks it can focus on sound finances while the U.S. manages world demand,” he said in a telephone interview, “but unfortunately we are not doing that.”...
[I]n Europe there is hardly a policy maker to be found who is making the argument that governments need to spend more, not less. This is particularly true in Britain, where a combination of collapsing tax revenues and government spending to prop up banks and support the unemployed during the financial crisis has contributed to a budget deficit equal to 11 percent of G.D.P., second highest in Europe after Ireland....“In the U.S., central bank memory is ingrained in the Depression, while in the U.K. it is being bailed out by the I.M.F.,” said Michael Saunders, an economist with Citigroup in London. “That gives policy makers different sets of priorities.”... An opinion poll on Sunday revealed that while the public worries about the fairness of cuts and the government jobs to be lost, 45 percent supported the program, with 23 percent opposed...
So let me add the rest of what I said that Landon Thomas should have included in his article. Let me point out that it is not just Keynes that is being thrown over the side, but Milton Friedman and his teachers--most notably Jacob Viner--as well.
And let me doing so by turning the microphone over to Milton Friedman and listen to what he says of those who preach fiscal (and monetary!) austerity during depression:
[A] debate on Keynes between Abba P. Lerner and myself... in the late 1940s.... Lerner was trained at the London School of Economics, where the dominant view was that the depression was an inevitable result of the prior boom... that the monetary authorities had brought on the depression by inflationary policies before the crash and had prolonged it by "easy money" policies thereafter; that the only sound policy was to let the depression run its course, bring down money and costs, eliminate weak and unsound firms.... It the was London School (really Austrian) view that I referred in to my "Restatement" when I spoke of "the atrophied and rigid caricature [of the quantity theory]... described by the proponents of the new income-expenditure approach, and with some justice."...
The intellectual climate at Chicago had been wholly different. My teachers... blamed the monetary and fiscal authorities for permitting banks to fail.... [T]hey issued repeated pronunciamentos calling for governmental action to stem the deflation... "large and continuous deficit budgets to combat the mass unemployment and deflation of the times... Federal Reserve banks systematically pursue open-market operations with the double aim of facilitating necessary government financing and increasing the liquidity of the banking structure." ... Keynes had nothing to offer those of us who had sat at the feet of Simons, Mints, Knight, and Viner....
[A] talk Viner delivered in Minneapolis on February 20, 1933, on "Balanced Deflation, Inflation, or More Depression."...
It is often said that the federal government and the Federal Reserve system have practiced inflation during this depression no and that no beneficial effects resulted from it. What in fact happened was that they made mild motions in the direction of inflation, which did not succeed in achieving it....
[If] a deliberate policy of inflation should be adopted, the simplest and least objectionable procedure would be for the federal government to increase its expenditures or to decrease its taxes, and to finance the resultant excess of expenditures over tax revenues either by the issue of legal tender greenbacks or by borrowing from the banks...
