Surprised by Events

Nearly three decades have passed since someone coined the phrase “new economics” to describe some ideas which were hardly new even then. By the 1960s, the “new” economics had hardened into an oppressive orthodoxy which generated, in Tobin’s words, “enthusiasm and self-confidence” among believers. Central to the faith was the notion that government deficit spending could stimulate a chronically sluggish economy until the unemployment rate hit 4 per cent, at which point we might have to trade higher inflation rates for lower unemployment rates.

But now there is dissent. The “monetarist tide,” says Tobin, “is eroding the intellectual support of the new economics in the economics profession itself, the Federal Reserve, the banking and financial community, and the press.” As a result, “the profession has lost confidence in its own premises and methods.” It just isn’t fun to be a new economist anymore. Too many people think your newness is old-fashioned.

About the Author

Alan Reynolds

Alan Reynolds, National Review’s economics editor from 1972 to 1976, is a senior fellow at the Cato Institute and the author of Income and Wealth.

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Nearly three decades have passed since someone coined the phrase “new economics” to describe some ideas which were hardly new even then. By the 1960s, the “new” economics had hardened into an oppressive orthodoxy which generated, in Tobin’s words, “enthusiasm and self-confidence” among believers. Central to the faith was the notion that government deficit spending could stimulate a chronically sluggish economy until the unemployment rate hit 4 per cent, at which point we might have to trade higher inflation rates for lower unemployment rates.

But now there is dissent. The “monetarist tide,” says Tobin, “is eroding the intellectual support of the new economics in the economics profession itself, the Federal Reserve, the banking and financial community, and the press.” As a result, “the profession has lost confidence in its own premises and methods.” It just isn’t fun to be a new economist anymore. Too many people think your newness is old-fashioned.