Obsolete Economics may not be so obsolete

The global financial crisis that we are experiencing would not have surprised British economist John Maynard Keynes. Keynes thought that what is currently occurring in our world today was exactly how unregulated markets would behave.

Keynes's economic theory was formed not only by the roaring 1920s, but by the depressed 1930s. His principles were based on the thoughts that a wounded economy would not simply bounce back but might take years to recover. He believed the economy might, in his own words "remain a long time in a state of underemployment equilibrium," from which it could be rescued only by a massive external shock. As we know now, this proved to be the case. It was not the New Deal that brought the economy back to full employment, but the huge increase in government spending caused by World War II.

Of course Keynes' theory was not without its own problems, when in the 1970's it collapsed due to rising prices and unemployment but little growth in consumer demand. But most Americans thrived from 1950 to 1975. All markets have a period of unstability; its a fact of life.

We all hope thatPaul Krugman is right that the rescue operations taken in the past couple of weeks may be enough to stem the financial crisis. But the wreckage may be with us for a long time to come. Hopefully, it will not take another war to bail us out this time.