The 10-year experiment in Keynesianism & Monetarism

As if the experience and misery of the US and UK in the 1970s were not enough to prove once and for all that Keynesian economics is bunk, Japan has tried everything in the Monetarist and Keynesian book to restart their economy, and failed- giving us the biggest and most elaborate real world experiment in Krugmanomics.

I think what this really proves is that what truly matters in an economy is the underlying structure. If the structure is unsound and just plain broken, then all the 'goosing' of the economy will come to naught as far as making it work again. I see it as analagous to a car with an accelerator and a nitrous pump. If the engine's head gasket is blown (or a cylinder is busted, or there's no oil, no spark plugs, etc), then giving it gas or blowing nitrous into it will do you no good- the engine's broken and you have to take time to fix it, and sitting in the car flooding the engine with gasoline and gas just takes time away that could be used to fix the engine.

When the problem is massive and systematic malinvestment, as well as massive structural problems in your finance markets (and other markets), you have to have liquidation and savings in order to get the economy going again. Government spending and easy money & credit from the central bank can fiddle with an economy that's working, but they will never, ever, fix an economy that is broken.

Share this