“The Japanese government did absolutely everything the Austrian theory suggests it should not do in order to fight recession. It engaged in every single activity that Keynesians like Paul Krugman recommended. As a result, its slump went on for a decade and a half. Keynesians continue to recommend these very policies for the United States, as if the debacle in Japan never occurred. In late 2008 financial newspapers in the US actually began to speak of a revival of Keynesian thinking (claiming, absurdly enough, that the present crisis gave the ideas of Keynes, one of the twentieth century’s collection of inexplicably respected crackpots, a new lease of life) again with no mention of Japan.”
Thomas Woods, Meltdown, A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. Page 84.
This book is full of great passages like this. I have already quoted a nice line from Mr Woods mocking the contention that the enormous expansion of government spending in WW2 helped “solve” the Great Depression. Incredibly, there were people who actually defended this absurd idea on our comment boards. It never fails to amaze me that people overlook a basic fact of economic life: we work to produce stuff that people want to consume. The kind of state domination of a country during war, with its rationing, government direction of labour, and of course, mass conscription, hardly sounds like the sort of policy that anyone interested in increased prosperity should favour.
There is one point where I disagree with Mr Woods. He says the veneration of Keynes is inexplicable. It is in fact pretty easy to understand: he had a sort of superficial plausibility, and of course his ideas were meat and drink to politicians looking for intellectual cover to expand their powers. Even so, I do kind of wonder if Keynes would be embarrassed by some of the people who claim his name as justification for their views.