Saturday, June 04, 2011

Rothbard Describes Current Economic Debate

In his book America's Great Depression, Murray Rothbard pointed to the problem of testing theories empirically:

"Suppose a theory asserts that a certain policy will cure a depression. The government, obedient to the theory, puts the policy into effect. The depression is not cured. The critics and advocates of the theory now leap to the fore with interpretations. The critics say that failure proves the theory incorrect. The advocates say that the government erred in not pursuing the theory boldly enough, and that what is needed is stronger measures in the same direction."

As it becomes increasingly evident that Obama's policies have utterly failed to create a recovery worth mentioning, and as the risk of a double-dip rises, we keep hearing from anti-Keynesians that this proves Keynesianism wrong, while Keynesians like Paul Krugman and others argue that this proves that Obama's policies didn't pursue Keynesian policies boldly enough as he didn't increase deficit spending enough (and that increased deficit spending now is the solution). In other words, the situation is exactly like Rothbard described it, with Keynesianism being the theory put in place.


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