Why the Keynesians Have Prevailed
27 June 2017 | Pago Pago, American Samoa
Keynesians support intervention in the economy, monetarists and Austrians don't. Keynesians believe in both fiscal and monetary policy equally. Monetarists and Austrians abhor fiscal policy because they think it interferes in the free market economy, but they have no objection to monetary interference in the economy if it is done by rigid rules (the Friedman position).
Keynesian interventionists have prevailed over monetarists and Austrians because:
1) they have eliminated depressions in countries adopting their policies;
2) they have reduced the impact of recessions in countries adopting their policies;
3) the evidence has established free markets react too slowly and inflict a lot of pain in making corrective adjustments by means of recessions and depressions;
4) the ongoing monetarist/Austrian economic worry about inflation has slowed growth and been disproved by the evidence. The Fed abandoned inflation worrying in 2015 and now targets reduced unemployment;
5) the quantity theory of money used by the monetarists and Austrians collapsed in the early 1980's when its ability to predict velocity or the demand for money totally failed. The reason was the growth in the type of near money assets people could use as liquid stores of value and for hoarding, in an environment of rising economic inequality, and
6) recent data and research show proportionally larger government leads to greater economic prosperity, freedom and health which is consistent with Keynesian policies but contrary to the Austrian/monetarists policies of non-interference by government, smaller government and lower taxes.
The result has been a very clean sweep by the Keynesians and economic oblivion for the monetarists and Austrians. The goal now is refining how best to intervene with monetary and fiscal policy in the economy with a growing focus on social justice and fairness and keeping out of boxes like the Fed has put us in.