How an Economy Grows and Why it Crashes

Introduction

Over the past century or so, academics have presented mankind with spectacular scientific advancements in just about all fields of study...except one.

Armed with a mastery of mathematics and physics, scientists sent a spacecraft hundreds of millions of miles to parachute to the surface of one of Saturn's moons. But the practitioners of the "dismal" science of economics can't point to a similar record of achievement.

If NASA engineers had evidenced the same level of forecasting skill as our top economists, the Galileo mission would have had a very different outcome. Not only would the satellite have missed its orbit of Saturn, but in all likelihood the rocket would have turned downward on lift-off, bored though the Earth's crust, and exploded somewhere deep in the magma.

In 2007 when the world was staring into the teeth of the biggest economic catastrophe in three generations, very few economists had any idea that there was any trouble lurking on the horizon. Three years into the mess, economists now offer remedies that strike most people as frankly ridiculous. We are told that we must go deeper into debt to fix our debt crisis, and that we must spend in order to prosper. The reason their vision was so poor then, and their solutions so counterintuitive now, is that few have any idea how their science actually works.

The disconnect results from the nearly universal acceptance of the theories of John Maynard Keynes, a very smart early-twentieth century English academic who ...