Keynesian Allure
“You have no idea how bad it was… Roosevelt had to do something.” This is the answer you are likely to get if you ask someone who lived through the Great Depression what they thought of FDR’s policies. The situation was unbearable. Things needed to change and the government responded by trying things (something… anything…) that it thought might work.
The problem with the free market is that it doesn’t give policy makers and bureaucrats anything to do. In fact, for the free market to work its magic, they have to do precisely nothing. You might think that bureaucrats would be especially good at doing nothing – but you’d be wrong. They like to keep busy.
And when it comes to presidents, well, presidents like to be men of action. Only Eisenhower seemed to believe that on any given day, the best thing he could do for the country would be to play golf
Briefly harkening back to FDR’s depression-era policies, during another rough patch in American economic history in 1971, President Nixon declared, “We are all Keynesians now.” Nixon, you see, was thought to be a proponent of free-market “hands off” capitalism. The problem was that in 1971 things were looking rather dire for the American free enterprise system. So dire, in fact, that Nixon gave up. Something had to be done! And Keynesian philosophy conveniently provided the government with a road map of just what they should do. All sorts of government tinkering ensued. What Nixon meant by his quote was that both political parties would turn to economic meddling if things got bad enough.
After all, you wouldn’t expect the President of the United States – ostensibly the most powerful person on earth – to do nothing at all in a crisis. And so the Nixon administration shifted gears, and even though the people thought they had elected someone who believed in free markets, they got wage and price controls. Don’t feel bad for the American people in 1971 though, they loved it – they wanted something to be done, too.
This seems to be an excellent historical precedent for our current situation. After all, everyone thought President Bush believed in the free market – no doubt even the president himself! But the situation turns out to be a little bit more complicated than that. After all, we now have bailout after stimulus after loan guarantee after bailout – it’s hard to keep track. Here are our president’s own words:
…I readily concede I chunked aside some of my free market principles when I was told by chief economic advisers that the situation we were facing could be worse than the Great Depression.
So I’ve told some of my friends who’ve said — you know, who have taken an ideological position on this issue, you know, “Why’d you do what you did?”
I said, “Well, if you were sitting there and heard that the depression could be greater than the Great Depression, I hope you would act too,” which I did.
It’s easy, I guess, to be in favor of free markets when you agree with their behavior, but much more difficult when you don’t like what you see. The problem seems to be especially acute when what you perceive as a result of a “hands off” approach to the economy, is actually a result of existing governmental interference in the economy. In this way, the more regulated markets become, the more regulation is necessary to regulate the “free market” – you know, so it can work better.
For some reason, people seem to have a belief that doing something will always make things better, and never worse. When it comes to the economy, it’s impossible to say. Keynesians love to gather as much information about an economy as possible, and then make pronouncements. You know, things like, “Unemployment is too high so the government should ‘create more jobs’ by spending money to build stuff.” I guess I’m just a little too unsure… of their information, their conclusions, their models, etc.
Sometimes I wish everyone in charge would just play a little bit more golf.
