E It Is The Economics, O America

Helped by James Carville, President Clinton had it almost right, “It’s the economy, stupid.”

However, it is not the economy, but the economics—in both its expressions: Economic theory and economic policy that we have to pay attention to.

Let us see. These are Keynes’ famous parting words in the General Theory:

“At the present moment people are unusually expectant of a more fundamental diagnosis; more particularly ready to receive it; eager to try it out, if it should be even plausible. But apart from this contemporary mood, the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.”

Less well known, Hayek said:

"When I look back to the early 1930s, they appear to me much the most exciting period in the development of economic theory during this century…. [T]he years about 1931,…. and say 1936 or 1937, seem to me to mark a high point and the end of one period in the history of economic theory and the beginning of a new and very different one. And I will add at once that I am not at all sure that the change in approach which took place at the end of that period was all a gain and that we may not some day have to take up where we left off then."

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