As Thomas Sowell writes, economics has moved beyond Keynesianism, but the Obama administration’s Fed nominee Janet Yellen hasn’t:
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.
Despite the myth that it was the stock-market crash of 1929 that caused the double-digit unemployment of the 1930s, unemployment never reached double digits in any of the 12 months that followed the crash.
Read the whole thing.