The financial crisis has spawned a series of books advancing explanations and remedies and this is one of them. At the outset the author asks his readers to go back to the first principles of economic freedom upon which the country was founded. These he enumerates as predictable policy framework, rule of law, strong incentives, reliance on markets, and clearly limited role of government. He adds that these principles also constitute a set of principles for economic success. What the author does not take into account – or perhaps does take into account but cannot alter – is the unpredictability of politicians who, to satisfy their electorates will switch from one approach to another when the economy is in trouble. In effect, this means a constant state of warfare between the two contending schools of economic theory – those who follow Maynard Keynes and believe in government involvement in economic decisions, and those who belong to the Hayek/Friedman school who believe in minimal government intervention and maximum freedom for the operation of market forces. As John Taylor points out, Milton Friedman in his book Capitalism andFreedom, published in 1962 “criticized the more expansive and interventionist role of government that Kennedy argued for in his inaugural address of 1961.” From this point onwards governments from Kennedy through Nixon to Reagan were interventionist ,  rather than not, and the Keynes approach to economic development appeared to have won the long ideological battle between the two schools of thought. When Ronald Reagan came to power at the beginning of the 1980s he turned sharply away from interventionist economics and with his “soul mate” Margaret Thatcher across the Atlantic, introduced a period of governments allowing market forces to have their head. A primary political rule appears to be that government automatically intervenes when the economy is in trouble even though, as Taylor would argue, such intervention is as likely to make the crisis more acute as it is to resolve anything. As the author claims, “economic prosperity comes and goes as adherence to the principles of economic freedom comes and goes.” This is too simplistic while his opening statement of Chapter 5, “Ending Crony Capitalism as we Know it” – “most Americans are disgusted by the slew of government bailouts in 2008 and 2009” hardly applies to the workers who faced the collapse of their livelihoods while many Americans would query the sub-heading in the same chapter, “Real Health Care Reform through Economic Freedom”. In his conclusion Taylor argues that if America refocuses upon the five key principles of economic freedom (quoted above), “We will restore America’s prosperity, benefit the world economy, and in turn lock a more prosperous American economy into a grand virtuous circle.” Life and economics are not as simple as that.
 

 

Banners

Videos