The current recession has brought back discussion on the merits of countercyclical fiscal and monetary policy. Broadly speaking, the economics profession is divided into two camps. One side is made up of “liquidationists” and “deficit hawks,” supporting tight monetary policy and low — or no — government spending. The other group is composed of those fearing a fall in prices, who support easy credit and expansive fiscal policy to combat it. While most economists probably fall in between, this dichotomy represents the two poles.

The most fundamental divide in American politics today is between mainstream citizens, a large majority of whom hold traditional, largely conservative views, and our political class, which tirelessly seeks to impose a very different regime on the rest of us.

Attempts to “fix” the economy through legislation and regulations will have no positive impact, but rather will continue to distort the economy and inhibit recovery: see, housing tax credits, Cash for [Your Industry Here]; TARP bailouts, mark-to-make-believe, extend and pretend, and many other programs that have backfired. Increased taxes will harm the economy; if the Republicans get a foothold in November it is likely that the Bush tax rates will stay. On the other hand …

At long last a major city in the US (Fort Worth has a population in excess of 600,000) is considering doing what desperately needs to be done: killing defined benefit pension plans for public workers.

Discussions of the economy, especially during times of crisis, are often framed in terms of lessons we supposedly learned during the Depression of the 1930s. If we are not to endure terrible times like those again, we are told, we must support whatever form of state intervention is currently being peddled. The Depression is supposed to be Exhibit A of the alleged instability of the free market left to its own devices, while the New Deal represents the indispensable corrective power of the state. That’s why it’s so essential for those who believe in a free economy and a free society to know this history cold, and to know it better than anyone.

Whether such a system of social security is a good or a bad policy is essentially a political problem. One may try to justify it by declaring that the wage earners lack the insight and the moral strength to provide spontaneously for their own future. But then it is not easy to silence the voices of those who ask whether it is not paradoxical to entrust the nation’s welfare to the decisions of voters whom the law itself considers incapable of managing their own affairs; whether it is not absurd to make those people supreme in the conduct of government who are manifestly in need of a guardian to prevent them from spending their own income foolishly. Is it reasonable to assign to wards the right to elect their guardians?

Wall Street is full of Austrian School folks, while academia is full of more Keynesian folks. This isn’t chance.

I’m not a fan of tampering with large, complex systems that I don’t really understand, which is why I tend not to support much direct government intervention in the economy