James L. Payne has written Can Government Manage the Economy, a perspective on modern-day witchcraft as practiced by government. The assumption that such management was feasible was invalidated almost immediately:
For 98 years the federal government has been attempting to prevent asset bubbles, recessions, and spasms of unemployment. In 1913 Congress and Woodrow Wilson created the Federal Reserve System, the President telling the country this new institution would be “a safeguard against business depressions.” In 1929, after 15 years of Fed operations, the United States plunged into a deep depression.
Despite continual failures, the myth that government is necessary to regulate persists. Markets are always blamed. More specifically, it is always “unregulated” markets:
The 2008 recession was triggered by the boom and bust in the housing market. Was housing an unregulated market where government had failed to intervene? Sorry: There were seven agencies supposedly nurturing this industry:
1. Federal Housing Administration (1934)
2. Federal National Mortgage Association (Fannie Mae) (1938)
3. Government National Mortgage Association (Ginnie Mae) (1968)
4. Federal Home Loan Mortgage Corporation (Freddie Mac) (1970)
5. Neighborhood Reinvestment Corporation (1978)
6. Federal Housing Finance Board (1989)
7. Office of Federal Housing Enterprise Oversight (1992)
In sum, at the onset of the 2008 recession there were 16 units of the federal government that were supposed to manage economic life and keep us from harm, yet harm befell us. No wand-waving faith healer has ever failed so conspicuously.
Despite almost 100 years of failures, there are people who still believe that government is the answer to economic cycles and problems. Of course, almost all of these people either work directly for government or benefit from it via grants and other payments. And now, most economic cycles and problems are nothing more than outcomes from previous government interventions.
Keynesian economics, in addition to being just plain misguided in terms of economic thinking, rests on two incorrect assumptions:
There are two fallacies in the Keynesian view that government can be a “parent” watchfully guarding over the national economy. First, the politicians who run government don’t have superior wisdom and maturity. Government officials are ordinary, fallible human beings. They can be careless, inattentive, and shallow. They can be swayed by emotion. And sometimes they can be dishonest and corrupt.
The second fallacy is that the public is an ignorant child. The economy’s millions of individual businessmen and investors have, collectively, vast wisdom about economic possibilities and trends. These individuals pour their knowledge into their market behavior, thereby setting the prices of assets, goods, and services. Left free to suffer the consequences of their decisions, investors and entrepreneurs will develop systems for managing risk and for evaluating the validity of investments. These systems won’t be perfect, of course: There will be errors, bubbles, and frauds. But from these errors, the community learns to improve decisions in the future.
To be fair, this criticism of Keynesian economics applies to any brand of economics foolish enough to believe that an economy can be centrally managed or guided. However, most other schools (save Maxism) are not nearly as arrogant.