Lost Governments

The aim of Economics is to give the best outcome to society for a given amount of resources so governments looks to economic theories to achieve this result. This simple aim becomes quite complex when the different schools of economics compete to influence governmental action. Empirical and mathematical methods are used by some schools to support their claims which makes them more influential in a world with much belief in science and mathematics. Beyond the limitations in the scope of the theory (the minds that conceive it), data analysis and unrealistic simplifying assumptions there is also the social fact that what is understood and implemented by governments is often not even what the theory, rightly or wrongly, was suggesting. Governments are made up of politicians and some economists, from whatever school is being looked to for solutions at the current time, or have the political connections for gaining power.

The story over the past twenty years is that Marxian government planning and intervention of the economy was proven wrong once and for all with the collapse of the Soviet Union. Free market capitalism was declared the clear victor and over the next 15 years assumed it was what was being implemented and was giving the best outcome to society. The fact that the Federal Reserve has been intervening in the market since the late 90s to prop up the vested interests of large investment managers cannot be understood by commentators, who influence politician and the public. These commentators believe, probably because the Federal Reserve deals with money and business, that the Federal Reserve is a free market institution.

Suddenly, now that a big collapse has occurred under the supposed free market system, a new differnt theory must be found. There are only a couple of approaches for resource allocation in economics so some out of fashion school comes back into fashion. As complete free markets were the old story then the new story has to involve more control of the resources by government, which of course suits the politicians who are only too willing to spend money. Luckily there is the Keynesian school of economics which allows for government intervention without using the name of Marx.

In reality though, the collapse was caused by intervention of the Federal Reserve in the market, by overexpanding the supply of money and the bailing out of failed firms (failed due to incorrect business models and shifts in consumer demand [Asia was producing the cars, electronic goods, etc that Western consumers wanted]). However as the wrong culprit has been identified, intervention is being used to save an economy destroyed by intervention and we have ended up with confused politicians. So now we have confused governments who are believing in a hodge-podge of ideas - most recently the US government claiming it was "abandoning free market principles to save the free market"!. The extra years of economic theory since the great depression has only led to confusion, making leaders bereft of logical thinking to address the problems of the real world.