2009-05-11

Old ideas die hard

There's not much I can say kindly about Economic Realities and the Marx Mystique
Marx was among the very first to recognize that the fever-fits of financial crisis and depression that afflict modern market economies were not a passing phase or something that could be easily cured, but rather a deep disability of the system. That was a good. We are being reminded of this now. Marx pointed a spotlight in the right direction. He thought that cycles and crises showed the long-term unsustainability of the system. We modern, neo-liberal economists view it not as a fatal lymphoma but rather like malaria: Keynesianism -- or monetarism, if you prefer -- gives us the tools to transform the business cycle from a life-threatening yellow fever into occasional night sweats. With economic policy as quinine, we can manage the disease.
Except it's the Keynesian/monetarist intervention in the economy that exacerbates the natural boom and bust cycle. Central banks manipulate the interest rate, the most important price in a modern economy. Price controls do not work, and we have governments all over the world controlling the most important price in the world.

Granted, Brad Delong is writing in a Chinese magazine, but I'd argue there is nothing to be learned from Marx. The idea of communism isn't new (even in China), it was proposed under different names at different times in history. Where he is correct, it is because he is a classical economist, but there are plenty of those who did not make his social and political mistakes.

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