CATO? Fail.

I was in the car today for far too long, driving back to NY a day early (to avoid the impending snow storm), and was killing time by listening to an interesting talk radio program. Yes, I listen to talk radio. Not religiously, but around D.C. you are likely to come across something interesting and thought provoking, as was the case this time. But enough of my rationalizing. 

The CATO Institute, a libertarian, a pro- free market think tank, was either presenting a report or just having a panel discussion (the signal cut out before I was able to uncover the underlying purpose of this event) where experts were sharing some of their thoughts on the (you guessed it) financial meltdown. (Note: I am going to avoid using the term "financial crisis" at all costs. Lets see how creative I can get). 

The one "expert" whose presentation I was able to listen in its entirety was categorically criticizing Keynesian economics. For those of you who have not taken ECON 101, John Meynard Keynes was a British economist who founded a profoundly important and influential branch of economics that has guided economic policy for much of the last 100 years. Keynes challenged the long standing belief in the power of the "invisible hand" to guide the market. He felt that as opposed to guide, this hand strangles the market. Man's unwillingness to manipulate the economy had consequently brought it to its knees in 1929. 

Keynes felt that the government was in a perfect position to influence how the market functioned, typically by debt-fueled spending in certain strategic sectors. As the only institution with the ability to print and dole out legitimate dollars, he believed it ought to use this power to its advantage. 

Anyways this guy went through every major implementation of Keynesian policies in the past century. Disabusing me of a long held belief, he showed that the economy under FDR (a big proponent of Keynes) did not improve from the failed era of Hoover, his predecessor. Even at the end of the 1930s, the economy had yet to recover from the crash of 1929. We must therefore attribute the economic turnaround to WWII. 

After sharing some other examples demonstrating his eery and esoteric historical acumen, including the ill fated Japanese Keynesian experiment in the 90s, this guy showed his true colors when he dropped a concluding bomb out of the blue, "the government isn't the solution to the problem, its the cause of the problem."

What? Hold on for second. I, just having taken statistics, with the "3 elements of causal inference" ingrained into my being, recognized immediately that this man had done a terrible job of proving causality. 

His point about Keynesian economics having an overblown historic legacy was well taken. But it is difficult to jump from this to the conclusion that we ought to not allow the government to intervene into the economy. 

The under-performance of Keynesian reforms does not mean the government has no place in the economy. A more reasonable conclusion would have been to discredit Keynesian policy itself --which is importantly (but apparently for some people, not obviously) just one type of government-driven fiscal policy. Ultimately this expert failed to consider the full gamut of known and yet-to-be-discovered economic policies involving governmental intervention that might prove to be an effective catalyst of economic growth. 

In these twisted and fearful times, (in addition to laying off of grandfather's hooch when loaded weapons are within reach) we ought t0 not let historical examples condition our considered response. While yes, we must learn from history, we also should recognize the uniqueness of this situation and be open to any solution with the promise of working. But by declaring "the government is the problem," this expert was unknowingly letting his CATO colleagues contaminate his cerebrum, and shutting the door on a slew of policies that -- like WWII in the '40s -- might prove to be the economic defibrillator we need.