The public standing of economics and economists has been declining for some time. In the 1960s and 1970s, economists were seen, and they saw themselves, as the saviors of the economy. They talked of “fine-tuning” the economy, of changing government spending and taxes up and down (this was called fiscal policy) to keep the economy at full employment without inflation. But in the following years, unemployment and inflation grew together.
In the 1980s and 1990s, economists abandoned the idea of controlling the economy by fiscal policy in favor of controlling the economy by monetary policy (changing interest rates up and down by changing the growth rate of the money supply). In fact, as administered by Alan Greenspan, this approach seemed to work for about 25 years, as from 1982 to 2007 the economy experienced almost continuous economic growth without inflation. Then the whole enterprise blew up in their faces in the Great Recession of 2008 and 2009, when interest rates were driven to zero, bankers could not be induced to make the loans that would increase the money supply, and the economy remained stuck with an unemployment rate of between nine and ten percent. Economists appeared helpless, especially those in the Federal Reserve System, the chairman of which now had virtually unlimited power. The only policy he could think of was the so-called Quantitative Easing I and II (QEI and QEII) under which the Fed purchased some $750 billion of Treasury securities with newly created money. The only clear effect has been to reignite price inflation after twenty-five years of quiescence.
As a result, the confidence of the American people in economists, in their policies, and in their theories, has continued to plummet. Economists had claimed the power to lead us to prosperity, to full employment without inflation, and instead they led us off a cliff.
But I am an economist. How do I escape the general, well-deserved disdain with which people now regard economists? I escape it by having opposed from the beginning the idea that economics could, should, or would serve as the partner of the state in leading us to economic success. I have never seen any role for economics in helping the state control the economy. I was opposed to “fine-turning” fifty years ago; I am opposed to all the variations on that idea today.
The solution to our current economic mess is not some new state measure dreamed up by economists. The solution is to ROLL BACK THE STATE. But, the statists scream, what will happen to us then? How will we survive? After all, they repeat endlessly, all the rules, controls, regulations, policies and edicts that have grown up over the last hundred years were a response to some real problem, some failure by the free economy. NO THEY WERE NOT! They were the result solely of the ideological conquest by the statists of our universities.
This is what my book — Objective Economics — is about: How the economy works when there is zero government intervention—when the government does nothing but keep the peace. What I show is the functioning of laissez faire capitalism—that it works and how it works, when everyone, every single person, is pursuing his own self-interest and doing the best he can for his life and those he loves.
