ECONOMIC POP PHILOSOPHY: COMING FULL CIRCLE

From New Perspectives Quarterly:

Nathan Gardels: You have outlived Milton Friedman, who died in 2006. And now your Keynesian ideas have also outlived his radical free-market ideology. Is economics back to where you started?

Paul Samuelson: You are right. I am old enough to have seen the cycle come full circle. My experience is more valuable now than it was even a year ago, since I first became actively engaged in economic policy on Jan. 2, 1932, at the rock bottom of the Great Depression, when I was an adviser to the Federal Reserve Bank in Washington. In subsequent years, I was principal economic adviser to President-elect John F. Kennedy in 1960 and recruited the team for his Council of Economic Advisers.

I became a centrist early on. Of course, the central planning system of the socialist states we still contested with ideologically in those days was idiotic, but that didn't mean government doesn't play a critical role.

And today we see how utterly mistaken was the Milton Friedman notion that a market system can regulate itself. We see how silly the Ronald Reagan slogan was that government is the problem, not the solution. This prevailing ideology of the last few decades has now been reversed.

Everyone understands now, on the contrary, that there can be no solution without government. The Keynesian idea is once again accepted that fiscal policy and deficit spending has a major role to play in guiding a market economy. I wish Friedman were still alive so he could witness how his extremism led to the defeat of his own ideas.

More here.

No real commentary about this tonight. I just wanted to assert an opinion on this from a Nobel Prize winning economist who isn't named Paul Krugman. And this isn't even to entirely invalidate Milton Friedman, either, just his more radical ideas that have taken root in the US political mainstream. That is, neoliberalism, as popularly understood, with its strong emphasis on government non-interference in the economy, is now shattered as a pop philosophy. I mean, certainly there are numerous areas of the economy, numerous individual instances, where government intervention is unwise. But the conventional wisdom that it is always better for the government to stay out of the economy is now obviously flat out wrong. Quite the reverse, in fact, as Samuelson observes, the government must involve itself in the economy. The only questions to be debated concern how that's going to happen, and why.

A related thought: politicians and the mainstream media continue to ignore that this philosophical shift has taken place. Right wingers like Congressional Republicans and FOX News have an obvious stake in doing this, but I'm genuinely perplexed by Democrats' refusal to put the debate in terms of Keynesian economics versus neoliberal economics. Doing so would head off many if not most of the Republican talking points on Obama's economic initiatives. My guess, and this is supported by how the White House seems to be controlled to some extent by the banking and financial sector, is that the Democrats aren't entirely ready, themselves, to admit that a new economic reality has dawned. That is, neoliberalism has been embraced by the Dems almost as thoroughly as by the GOP.

I just hope the Democrats can shake off their hangover soon. Things are going to get worse before they get better, and pussyfooting around while Rome burns isn't going to help things one bit.

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