How an Economy Grows and Why It Crashes

“The Fish Story”

Economists haven’t achieved any feats nearly as monumental as those of scientists in other fields. If aeronautical engineers can send rockets to Saturn, for example, why can’t economists predict and prevent financial busts? The “dismal science” gets even gloomier as economists prescribe spending as the solution to current economic woes, piling more debt onto consumers and nations. Who’s to blame? Start with John Maynard Keynes, who in the 1920s pushed government spending and regulation as necessary measures to protect jobs. Governments eagerly snapped up the Keynesian worldview, which promised full employment and social benefits without increasing taxes or cutting spending. Banks profited from government programs and incentives to promote borrowing, and universities hired experts versed in Keynesian policies to teach generations of policy makers. The result: Easy access to credit and massive indebtedness – of individuals, businesses and nations – embroiled the world in a mess. Spending on stimulus programs, tax rebates and bailouts isn’t going to alleviate this predicament.

Libertarian Irwin Schiff had a different answer. Known primarily for his lawsuits...