The Economic Crisis and Fresh Thinking: The Hopeful Emergence of “Milton Keynes”
The role of ideology in the financial crisis is unquestionable. Successive administration’s collective confidence in the free market over the last three decades might very well be the root cause of our current economic state. However, as Posner suggests, the current climate is likely to encourage “fresh thinking” by economists, politicians, and the general public. By providing the country with a new case-study from which to make 21st century economic conclusions, the warring schools of economics may potentially find some common ground and begin to narrow the intellectual divide that is at the heart of much of the country’s problems. The modern movement must be to marry the basic and established (though seemingly contradictory) concepts pushed by Milton Friedman and John Maynard Keynes into a workable and realistic understanding of economics.
Perhaps the fundamental problem with economics is that the numbers only get you so far. There comes a point where empirical testing cannot prove or disprove economic claims. Instead, ideology acts as the final piece of the macroeconomic puzzle – the point where the various schools part ways. When it comes to depressions, economic liberals see them as demonstrative of capitalism’s inherent flaws, while conservative economists see them as the product of unnecessary governmental intrusion into the market. This leaves both Washington and the public without any real confidence in their understanding of how the economy works, since almost any economic explanation or claim can be rebutted by an opposing school of thought. All of this has contributed to the public’s confidence in the trade dwindling to a historic low. In the words of the Economist, “an arrogant profession has been humbled.”
Yet, as is often the case in depressions, there may be a silver lining. The current condition has already encouraged some of the most loyal free market economists to begin to think outside of the box. For example, Ben Bernanke supports the economic stimulus – a program that is straight out of the Keynesian playbook. He seems to have come to terms with the fact that monetary policy alone is not enough to bring a country out of depression. In light of the government’s action during both the Great Depression and the current crisis, one must conclude that a more active role for the government in filling the void left by falling demand during severe economic downturns is essential, and seems to suddenly emerge as a unifying notion between the historically warring economic sects.
The danger, of course, is the replacement of one evil with another. If Keynes blindly becomes the heart of American economic policy, then another economic calamity may well await us once we dust ourselves off from the current mess. The trouble with societal shocks as significant as the one we are in is that it has the potential to shift the pendulum too far in the opposite direction. Nobody wants to be too close to a source of distaste. And the speed of the economic profession’s shift from free market principles to Keynes might prove that the intellectual underpinnings of the profession are unstable. If they are unstable, then they’re capable of being pushed and pulled by changing tides. Both the public and Washington must dispassionately come to terms with economics. We cannot substitute the exaggerated virtues of free market economics with a blindness to its benefits.
Unified action during severe economic downturns is only one piece of “Milton Keynes.” The true test of lessons learned may not come for decades – when the next asset bubble begins expanding. Will future administrations ride the next bubble in the hopes of maximizing the political advantage that comes with economic prosperity? Or will they have the foresight necessary to sacrifice immediate prosperity for long-term stability? The idea behind Milton Keynes is the decreased reliance upon outdated ideologies and the rediscovery of economics as a non-partisan tool of decision-making, the principles of which appeal equally to all parties. After all, no party has an interest in seeing its policies create economic instability. And the entire country has an interest in Washington relying less on ideologies and partisan interests and more on the science of economics as evidenced by the past.
