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11 years ago
Tuesday, January 13, 2009
Does Depression, V. 2, Require Economists To Reconsider Theory?
Jeff Madrick reports little sign of the consideration of this question at the AEA/ASSA conference last week. Yves Smith comments on this question, and points us to a paper by Daron Acemoglu. I have yet to read Acemoglu's paper. Steve Keen makes a case for such reconsideration. (I wrote this post before reading this particular bit from Keen.) Peter Boettke asserts current events cannot challenge laissez faire economic policy because laissez faire has yet to be tried.
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"Peter Boettke asserts current events cannot challenge laissez faire economic policy because laissez faire has yet to be tried."
In a sense he is right, modern capitalism is very far from the ideal of laissez faire (assuming it could be imposed). Yet every time that it has been approached, the results have been the same -- an economic collapse.
Looking at 19th century America, for example, which most right-"libertarians" seem to consider as the closest we have got their idea (Rothbard talks of "quasi-laissez-faire industrialisation [in] the nineteenth century"), was highly unstable. Chile collapsed the year after Friedman proclaimed it an "economic miracle". Thatcherism produced two deep recessions. And so on, until now...
Surely moves towards laissez-faire should be associated with more stability, not less?
As with the collapse of Iceland, it appears that when the economy was booming it was due to it applying laissez faire ideas. When it collapses, it is always someone else's fault...
Iain
An Anarchist FAQ
"Surely moves towards laissez-faire should be associated with more stability, not less? "
Actually in some way, not exactly, sort of roughly, Acemoglu's arguing the exact opposite.
LF might still be a good deal if the costs of higher instability come with the benefit of higher overall incomes. As long as you're not too risk averse. This is also behind the Lucas idea that economic fluctuations don't matter nearly as much as what the actual level (and its growth rate) is.
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