"Those who don't know history are destined to repeat it."
This warning from the 18th century Irish philosopher Edmund Burke explains why our generation is trying to overcome the latest economic crisis with policies responsible for the cycle of recessions from the mid-1960s to the early 1980s. Robert Samuelson, who started his career as a reporter for The Washington Post during one such crisis, believes that the reason why we are so tragically undereducated and unprepared to face the current challenges and future threats is the lack of a well-written, comprehensive narrative of the stagflationary era.
The keepers of the knowledge compartmentalize. Historians do not study economic theory and fail to make the connections between causes and effects. Most economists have cut their access to the public by drowning in math and jargon. The few among us who develop an interest in history are usually not known for their superb literary skills. Ignoring the messy landscape of political and cultural events, they often forget to explain the link between major economic forces and broader social consequences.
With his book The Great Inflation and Its Aftermath, Samuelson is trying to retrieve the lost history of the Keynesian boo-boos. His story begins with JFK's pick of Walter Heller for his chief economic adviser. Described as an "aggressive salesman" for what was then labeled "new economics," Heller was the first to consciously test Keynesianism on a large scale. When he retired from the Council of Economic Advisers in 1964, he left behind the first in a series of presidents who would use "the full range of modern economic tools" to manage the national markets and impact global events.
Heller boasted how through him economics had come of age and the White House had acquired immense new powers. He had brought to politics a whole bunch of like-minded macroeconomists, full of pride and good intentions. Among them were Paul Samuelson and Robert Sollow of MIT, plus James Tobin of Yale, all future Nobel laureates in economics. As the intellectual godfathers of the promised "full employment" paradise, economists were acquiring for the first time celebrity status. They had the responsibility to transform capitalism, braking the "paralyzing grip" of old "myth and false fears" concerning limited government, balanced budgets, and stable prices.
President Lyndon Johnson took upon himself the duty of "fine-tuning" the economy. At the launching of his Great Society experiment, he shocked his constituents with the declaration: "I do not believe that recessions are inevitable." Even after the Keynesian stagflationary cycle had already started, Yale economist and LBJ's chief economic adviser Arthur Okun was still assuring the nation: "Recessions are now considered to be fundamentally preventable, like airplane crashes."
Next week I shall remind the readers about some of the economic crashes under the Keynesian doctrine.