The peril of ignorance

Especially when you’re ignoring Austrian economics in favor of Keynesianism:

[T]o say that anyone who is a serious student of economics is not thoroughly familiar with Keynes’ ideas beggars credulity. The standard construct of the economy used by virtually all forecasters, from the Federal Reserve on down, is basically Keynesian, with varying opinions about how the model works. That none of them predicted the current crisis is telling, and indeed damning of the approach. What definitely is ignored in academe is the Austrian school of economics, especially for baby boomers brought up on Samuelson’s economics text, which was pure Keynesian orthodoxy….

Austrian economists assert the current crisis is the inevitable result of the Fed’s successive efforts to counter each previous bust. As the credit expansion pumped up asset values to unsustainable levels, the eventual collapse would result in a contraction of credit as losses decimate banks’ balance sheets and render them unable to lend. That sounds like an accurate diagnosis of the current problems. In the meantime, both Western democracies and autocratic governments such as China are actively utilizing the ideas of both Keynes and Friedman alike in enacting massively expansionary fiscal and monetary policies to counter the crisis resulting from the severe contraction in credit.

It’s a pity that many nations have to suffer for the hubris of government and monetary authorities, but now that the Monetarists are dead in the water, perhaps one more nail in John Maynard Keynes’s coffin will suffice to kill the absurdity.

Notice, by the way, all the economic happy talk now that the market has risen for three straight days. There will be ups and downs, of course, but the general trend should be up for a few months until the bottom falls out again sometime between the fall and next spring.