Tuesday, January 26, 2010
In one of the most compelling pieces of writing in recent weeks on the subject of the upcoming Senate re-confirmation vote for Fed Chief Ben Bernanke, Australia's Steve Keen explains why modern economic theory must be taken out back to the woodshed.
The US Senate should not reappoint Ben Bernanke. As Obama’s reaction to the loss of Ted Kennedy’s seat showed, real change in policy only occurs after political scalps have been taken. An economic scalp of this scale might finally shake America from the unsustainable path that reckless and feckless Federal Reserve behavior set it on over 20 years ago.It continues to amaze me that so many smart people can go on thinking that the Great Depression materialized out of nowhere in 1929. Keen's piece is worth reading in its entirety, particularly the part about how the "expert" on the Great Depression (Bernanke) willfully ignores the role that debt played.
Bernanke is popularly portrayed as an expert on the Great Depression—the person whose intimate knowledge of what went wrong in the 1930s saved us from a similar fate in 2009.
In fact, his ignorance of the factors that really caused the Great Depression is a major reason why the Global Financial Crisis occurred in the first place.
If this were just about the interpretation of history, then it would be no big deal. But because they ignored the obvious role of debt in causing the Great Depression, neoclassical economists have stood by while debt has risen to far higher levels than even during the Roaring Twenties.
With each new defense of central bank policies over the last 20 years, neoclassical economists are sounding more and more like the early-17th century Catholic Church.