Sunday, December 27, 2009

Dead Men Walking

Why 2009's truly top thinkers are yesterday's news.

BY NIALL FERGUSON | DECEMBER 2009

There is nothing like a really big economic crisis to separate the Cassandras from the Panglosses, the horsemen of the apocalypse from the Kool-Aid-swigging optimists. No, the last year has shown that all is not for the best in the best of all possible worlds. On the contrary, we might be doomed.

At such times, we do well to remember that most of today’s public intellectuals are mere dwarves, standing on the shoulders of giants. So, if they had e-mail in the hereafter, which of the great thinkers of the past would be entitled to send us a message with the subject line: "I told you so"? And which would prefer to remain offline?

It has, for example, been a bad year for Adam Smith (1723-1790) and his "invisible hand," which was supposed to steer the global economy onward and upward to new heights of opulence through the action of individual choice in unfettered markets. By contrast, it has been a good year for Karl Marx (1818-1883), who always maintained that the internal contradictions of capitalism, and particularly its tendency to increase the inequality of the distribution of wealth, would lead to crisis and finally collapse. A special mention is also due to early 20th-century Marxist theorist Rudolf Hilferding (1877-1941), whose Das Finanzkapital foresaw the rise of giant "too big to fail" financial institutions.

Joining Smith in embarrassed silence, you might think, is Friedrich von Hayek (1899-1992), who warned back in 1944 that the welfare state would lead the West down the "road to serfdom." With a government-mandated expansion of health insurance likely to be enacted in the United States, Hayek's libertarian fears appear to have receded, at least in the Democratic Party. It has been a bumper year, on the other hand, for Hayek's old enemy, John Maynard Keynes (1883-1946), whose 1936 work The General Theory of Employment, Interest and Money has become the new bible for finance ministers seeking to reduce unemployment by means of fiscal stimuli. His biographer, Robert Skidelsky, has hailed the "return of the master." Keynes's self-appointed representative on Earth, New York Times columnist Paul Krugman, insists that the application of Keynesian theory, in the form of giant government deficits, has saved the world from a second Great Depression.

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5 comments:

  1. i am surprised by the honesty from Ferguson in this article, especially giving credit to the keynesians, and even krugman, with whom he has so many bloody battles in print during this crisis...

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  2. I have a few of his books. I try to find his articles, and interviews. But I still can not figure him out. LOL

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  3. I think that he has a few things wrong in his argument, such as "Freemarkets" (there is no such thing, and unconstrained free markets would be destructive anyway) and inflation, which his figures are incorrect (see http://www.shadowstats.com/alternate_data/inflation-charts )

    This one paragraph though does hedge his bet:

    "Of course, history offers more than just the lesson that financial accidents will happen. One of the most important historical truths is that the first draft of history -- the version that gets written on the spot by journalists and other contemporaries -- is nearly always wrong. So though superficially this crisis seems like a defeat for Smith, Hayek, and Friedman, and a victory for Marx, Keynes, and Polanyi, that might well turn out to be wrong. Far from having been caused by unregulated free markets, this crisis may have been caused by distortions of the market from ill-advised government actions: explicit and implicit guarantees to supersize banks, inappropriate empowerment of rating agencies, disastrously loose monetary policy, bad regulation of big insurers, systematic encouragement of reckless mortgage lending -- not to mention distortions of currency markets by central bank intervention."

    In this, I think he is clearly correct.

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