ammo: Arm Against the Keynesian Counter-Revolution

A generation ago Keynesian economics was dead and buried, abandoned even by the most influential Keynesian economist of them all, John Hicks.  It had been killed by the re-discovery of Hayek (by Robert Lucas , Alex Leijonhufvud, and John Hicks, among others), by Milton Friedman — and by stagflation.  Keynesian economics was rejected by the great political figures of the time.  By Thatcher and Reagan who looked to Hayek, not Keynes.   And by the leaders of the states of the former Russian Empire, by the Chinese, and across the European continent, who again looked to Hayek (and Friedman), and not Keynes.

But today the free market and the ideas of Friedrich Hayek are under massive assault.  The Keynesians are again in the saddle, riding the whipping horses of “crisis”, “deflation” and “stimulus” to the largest takeover of the free economy in the nation’s history.

How did this happen?

Let’s go back to the collapse of Keynes.  In the wider world, Keynesianism was in disrepute, but in the universities, the tenured clerisy remained — a  guild of modern day astrologers wedded to the ancient and failed cargo cult pseud-science of “Keynesian macroeconomics”.   But all was not perfectly well, even in the commanding heights of the Ivory Tower.  The economists, somewhat uncomfortably, taught an IS-LM  version of Keynesian economics to undergraduates which they laughed at in the graduate seminar room.   In the graduate seminars they oohed and aahed instead at “New” versions of Keynesian economics, given “equilibrium” foundations inspired in the first instance by Hayek (via Lucas), but having little to do with genuine microeconomic foundations.   Only problem?  There existed an unending number of these models — incompatible in various ways, and so different from “Keynes” that many of them went by names other than “Keynesian economics”.  But a new, naive, and politically polarized generation was coming on the scene, both in economics and in politics.  And the new order of the day was old time Keynesian economics, with “stimulus” and “deflation” the watchwords of the age.  First with George W. Bush [see links below], and Bush economists such as Greg Mankiw, Alan Greenspan, and Ben Bernanke.  And now with the arrival to dominance of Paul Krugman, Timothy Geithner and Barack Obama, things have really gone over the cliff.  A new age of Keynes is upon us.

Call it the Counter-Revolution of the Keynesian Pseudo-Science.

So the time is now for executives and college students and small business owners and journalists and the general public to intellectually arm up — and participate in the beating back of the Cargo Cult science of the new Keynesians.

Here’s your ammo.   All freely available on the internet.

Blogs:  EconLog, Cafe Hayek, Mish’s Trend Analysis, Mises Economics Blog, ThinkMarkets, The Austrian Economists.

Web Sites:  CATO Institute, Mises Institute, Library of Econ & Liberty, The Bailout Reader, Roger Garrison’s article archive.

Books:  Gerald O’Driscoll, Jr, Economics as a Coordination Problem:  The Contribution of Friedrich A. Hayek; Roger Garrison, Time and Money:  The Macroeconomics of the Capital Structure, David Laidler, Fabricating the Keynesian Revolution; F. A. Hayek, Prices and Production and Other Works; F. A. Hayek, Monetary Theory and the Trade Cycle.

Macroeconomists:  Roger Garrison, Gerald O’Driscoll, Jr., Lawrence White.

Video:   CNBC “House of Cards”,  The Crisis of Credit Visualized.

Finally, a collection of contemporary articles explaining the current economic bust:

• Mark Thornton, “The Housing Bubble in 4 Easy Steps”
• Gerald O’Driscoll, Jr.  “To Prevent Bubbles, Restrain the Fed”
• John Taylor, “How the Government Created the Financial Crisis”
• James Gwartney, “On The Fed and Greenspan”
• Michael Lewis, “Inside the Wall Street Doomsday Machine”
• John Taylor, “An Empirical Analysis of What Went Wrong” (pdf)
• Peter Wallison, “Goverment Policies and the Financial Crisis”
• David Beckworth, “No, Greenspan Was Not Right”
• Jim Grant, “Is the Medicine Worse Than the Illness?”
• David Rose & Larry White, “We Can’t Spend Our Way Out of This Quagmire”
• Arnold Kling, “Why Credit Default Swaps?”
• Seattle P-I, “FBI Saw Mortgage Fraud Early”
• OC Register, “How Subprime Lending All Started in OC”
• Mike Shedlock, “Krugman Still Wrong After All These Years”
• Steve Sailer, “Predatory Mortgage Lenders”
• The Wall Street Journal, “Lender Lobbying Blitz Abetted Mortgage Mess”
• Russ Roberts — “How the Government Stoked the Mania”
• Anonymous, “A Worm’s-Eye View of Wall Street”
• The NY Times, “Inside Washington Mutual”
• Steve Sailer, “Washington Mutual and the CRA”
• Mike Shedlock, “Time to Break Up the Credit Rating Cartel”
• William Black, “Fiddling While Rome Burns”
• Steve Sailer, “BofA’s $1.5 Trillion CRA Pledge”
• Felix Salmon, “Recipe for Disaster:  The Formula That Killed Wall Street”
• The Washington Post, “The Crash:  What Went Wrong”
• Lawrence White, “What Really Happened”
• The NY Times, “White House Philosophy Stoked Mortgage Bonfire”
• Martin Baily, et al, “The Origins of the Financial Crisis”
• Steve Sailer, “The Diversity Recession”
• Richard Wagner, “A Remarkable Question”
• George Selgin, “Guilty as Charged”
• Gerald O’Driscoll, Jr. — “Subprime Monetary Policy”
• Steve Sailer, “Karl Rove — Architect of the Minority Mortgage Meltdown”
• Lawrence White, “How Did We Get Into This Financial Mess?”
• Steven Horwitz, “An Open Letter to My Friends on the Left”
• Warren Coats, “The D E Fs of the Financial Markets Crisis”
• Arnold Kling, “My Planned Oral Remarks on Freddie & Fannie”
• Mike Shedlock, “Time to Break Up the Credit Rating Cartel”
• John Cassidy, “Anatomy of a Meltdown”
• William Black, “Adam Smith Was Right About CEO Incentives”
• Sebastian Mallaby, “Blaming Deregulation”
• The WSJ, “The Weekend That Wall Street Died”
• Michael Lewis, “Meltdown in Iceland”
• BusinessWeek, “Nightmare Mortgages”
• Steve Sailter, “A How-To Guide to Being a CRA Shakedown Artist”
• Tyler Cowen, “Bailout of Long-Term Capital”
• Arnold Kling, “Testimony on the Collapse of Fannie Mae & Freddie Mac” (pdf)
• Robert Higgs, “Lucas and the Fed”
• Eric Falkenstein, “WaMu and the Big Effects of Big Government”
• Lawrence White, “The Bungled Bailout”
• Wikipedia, “The Greenspan Put”
• Brian Riedl, “The Case for No Stimulus”
• John Cochrane, “Fiscal Stimulus, Fiscal Inflation, or Fiscal Fallacies?”

Find additional links and resources here.

UPDATE:  Read more about Bush’s consistently Keynesian approach to the economy here, here, here, and here.  On Bernanke and the mid 2000’s “deflation” scare read this and this and this.