Thomas Sowell writes today that while modern economics has largely moved past the principle theories of John Maynard Keynes, President Obama’s nominee to head the Federal Reserve has not. Via NRO:
Janet Yellen represents the Keynesian economics that once dominated economic theory and policy like a national religion — until it encountered two things: Milton Friedman and the stagflation of the 1970s. [...]
Nevertheless, the Keynesian economists have staged a political comeback during the Obama administration. Janet Yellen’s nomination to head the Federal Reserve is the crowning example of that comeback.
Ms. Yellen asks: “Do policy-makers have the knowledge and ability to improve macroeconomic outcomes rather than making matters worse?” And she answers: “Yes.”
The former economics professor is certainly asking the right questions — and giving the wrong answers.
Her first question, whether free-market economies can achieve full employment without government intervention, is a purely factual question that can be answered from history. For the first 150 years of the United States, there was no policy of federal intervention when the economy turned down.
No depression during all that time was as catastrophic as the Great Depression of the 1930s, when both the Federal Reserve System and Presidents Herbert Hoover and Franklin D. Roosevelt intervened in the economy on a massive and unprecedented scale. [...]
Under Calvin Coolidge, the ultimate in non-interventionist government, the annual unemployment rate got down to 1.8 percent. How does the track record of Keynesian intervention compare to that?