In early 1938 John Maynard Keynes, whose influential The General Theory of Employment, Interest and Money, was published 80 years ago this month, penned a lengthy personal letter to President Franklin D. Roosevelt. In it the British economist shared his recommendations for the U.S. economy, which had slipped into recession the previous year.
Keynes, after suggesting that the president handle businessmen as “badly brought up” domesticated animals, exclaimed that “I accept the view that durable investment must come increasingly under state direction.”
During the Great Depression Keynes’ ideas influenced the “bold persistent experimentation” of the New Dealers. In the 70 plus years since they have been deployed repeatedly by policy makers who believe that government can effectively manage and stimulate the economy and create jobs and prosperity in the process.
The bold persistent experimentation goes on to the present day. The Federal Reserve’s continued pumping of money into the banking system was characteristic of the belief that the government can tinker its way out of recession and into prosperity. As were projects such as 2009’s trillion dollar stimulus.
And what do we have to show for all this Keynesian fiscal and monetary policy? Anemic economic growth – gross domestic product is projected to rise only 1.75 percent this year, characteristic of one of the weakest and most deflationary recoveries in U.S. history.
Elsewhere stock prices are tumbling, the U.S. national debt has passed $19 trillion, wages continue to fall, especially for the lowest paying jobs, and record numbers of Americans are still absent from the work force, belying improving employment numbers. Very real talk of another U.S. and global recession persists.
The dismal economic data doesn’t make a great case for continued experimentation. Yet just last week Federal Reserve chair Janet Yellen raised the possibility of adopting negative interest rates to encourage more spending. This would put the U.S. in league with Japan, which recently went negative, and Sweden which just lowered its already negative interest rates, and other nations who are turning to this risky experiment to jolt their economies.
Before the dawn of Keynesian economic policies in the 1930s and the arrival of the central planners, economists dating back to and influenced by Adam Smith, saw the merit of linking currency to the gold standard, balancing budgets, limited government, and the ability of free markets and free men and women to order the economy and create prosperity. Though these ideas were vilified in the 1930s and continue to be frowned upon as relics by Keynes’ philosophical descendants, they created unprecedented global prosperity in the late 19th and early 20th centuries. They can do so again if given a chance.
In his letter to Roosevelt, Keynes admitted, “the maintenance of prosperity in the modern world is extremely difficult.” Indeed, especially when government takes on the maintenance. Time to return that task to the free market.
Originally Posted on NewsMax.com
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