John Maynard Keynes once said, “the difficulty lies not so much in developing new ideas as in escaping from old ones.” In today’s world where, after another grand financial recession in 2008 showed us that—surprise—we still do not have the perfect economic system figured out, we seem to still be trapped in a society dominated by the neoliberal ideas of economist Friedrich Hayek. Yet not only are we struggling to escape from this controlling theory about the free market, but also we do not seem to have any other great economist with the next big economic fad to which we can turn.
With the advent of capitalism came growth, something that has not stopped since, with personal income growing at about two percent every year since the 16th century. While many people in destitute situations came to thrive as a result of capitalism, economists continue to debate the best means of regulating the structure of this system and whether or not it should be more or less regulated within the free market.
While it is hard to define the history of economics as linear, there are more prominent names and economic theories that develop after the great economic downturns that mark transitions between the periods of how the market is understood. The first of these prominent authors is Adam Smith, who published The Wealth of Nations in 1776. This book represented the economic ideals of the time of the Declaration of Independence: ideals such as freedom of trade and economic mobility. Thus, from this comes the idea of the free market where people can move throughout the system and operate in efficiency.
Everyone knows the story of the Great Depression. Without much regulation in the free market, the stock market and the amount of people investing in it was rapidly growing and with it, the love for the freedom of Adam Smith’s market. But we also know how the story ends: with a crash resulting in 84 percent of the value gone by 1933. Whereas a few years had been a period of lavish spending, joy and carelessness, now came a period of extreme poverty with 24 percent of the labor force out of work. From this downtown, however, came John Maynard Keynes and his book The General Theory of Employment Interest and Money. From this book stemmed all sorts of new ideas about how the government should intervene in the economy; this is exactly what President Franklin D. Roosevelt ended up doing with his New Deal Plan, which helped pull America out of the Great Depression and put its people back to work. From this point on, the government had a new job: getting to and maintaining full employment.
While Friedrich Hayek’s ideas were created around the same time as those of Keynes, they were disregarded by the general public and policy-makers of the time. It was not until Keynesian economics ran into a problem that Hayek’s ideas came to be fully implemented. In the 1970s, the American public saw what is known as “stagflation.” While inflation and unemployment were both high, an oil crisis stagnated economic gross. From this big crisis came Hayek’s ideas of neoliberalism, a sort of spin on the classical economics of Adam Smith. These ideas paid more of a regard to deregulation of the free market than those of Keynes. After the bust part of the business cycle, leaders like President Ronald Reagan encouraged not only spending but also returning to stable production.
Yet Hayek did not solve all of the economic issues, and as a result of his deregulation, new products that created issues in the economic and banking sectors related to the housing market came to fruition. This created a sort of bubble in the housing market that burst in 2008, bringing America into recession once again.
So now is the time when there should be a discussion of whose policies rose in order to fix the problems that exist with Hayekian economics. The only problem is, there is not one. To steal a phrase from journalist Stephen Metcalf, this is the story of the dog that did not bark. We are still in an age when politicians are promoting neoliberalism and the idea of deregulating the government and social programs to let the market run on its own as is natural.
This leaves us to wonder why is there is an absence of the next great economic theory to guide us until we hit another recession. Perhaps it is that American politics will simply switch back to Keynesian ideals, as how they switched back to classical economics just with a different economic leader in the 1970s. Current President Donald Trump at least has made campaign promises that seem, well, promising for Keynesians as he advocates for allocations to build more infrastructure and many tax cuts.
Or perhaps Americans are still waiting for another great economic idea. It could be argued by many, now, that capitalism is not the best system of economics; it may be safe to say that it has reached its limits. The longer that we have capitalism, the greater the inequality in American society; the rich get richer while the poor get poorer. Maybe it is time that the next great mind will be one to look into the possibility of a post-growth society. Instead of one constantly aiming for GDP increases, it could be economics focused on the development of better standards of living for all people such as shorter work weeks, better school systems, and improved healthcare.
So maybe the problem is that there will not be another great capitalistic theory because what people want now is more than just a technocratic solution; people want a new structure entirely that serves more of society’s needs. The dog may never bark, but there is a chance that society should not be waiting on this moment. Maybe, there is a hope for something extraordinarily new.