"Alien vs Predator" is a movie about two extraterrestrials fighting for the domination of the planet Earth. In some sense, John Maynard Keynes and Milton Friedman have been doing the same for the past fifty years.
Keynes and Friedman are two economists whose theories have influenced over 80 years of US and world economic policies. Some of us remember learning their theories on macro economics back in junior high school.
Keynesians held sway after the economic collapse of 1929. Roosevelt architected the recovery using the Keynesian principles of "create jobs, put the money in common people's pockets, increase demand for goods and services." It took a few decades and a world war, but it got things moving again.
The Keynesian economic viewpoint dominated until the 1970s. Those of us who grew up during that time remember the long gas lines, the crazy interest rates, and skyrocketing inflation. What went wrong was that government spending had gotten totally out of hand. The spending was funded by ever-increasing taxes on businesses, and those with money. This tax burden decreased innovation, raised unemployment, and caused inflation to hit 16%. Friedman's idea that government should reduce taxes, simplify regulations, and basically get out of business' way got traction and was put into place in the form of "Reaganomics" in the early '80s.
For the next 30 years, the ideas of "greed is good" and the "market will regulate itself" was the mantra of the land. Of course, even the best parties must come to an end when the neighbors call the police at 3AM. This 30-year frat beer bash came to an end in 2008. There are signs that Keynesian policies may soon be back in vogue. The world will be feeling a hangover for a while and there is no quick fix. The world is not that same as it was in 1930. The economy is now global; money and information move around a lot quicker. There are lot more ways to make and sell things. We know a recovery is certain, but it will take a while. Five years? Ten years? Hopefully, it won't take another world war to get us out of this depression. In any case, we will be ready to retire in another ten years. Just in time for the next kegger!!! [Permalink]- Keynes vs Friedman