This is an important time for Austrians. During the Great Depression and for many years thereafter, J.M. Keynes and his followers dominated macroeconomic theory (some say they created it) as well as the conventional wisdom about the historical lessons of the Depression and the New Deal.

We are now witnessing many important developments that will affect economics and public perceptions for a long time to come. It is perhaps too late in their careers for most established economists to be much affected. They will go the epicycle route: rationalize, complicate, and immunize against criticism. Fine, this is in part what the “old guard” is supposed to do. And those with different ideas must struggle against them.

But look around. We are witnessing the clear unraveling of the New Deal legacy. The relative modest beginnings of the New Deal turn out to have been relatively unimportant. What was important were the tendencies that were set in motion. All those unreconstructed Republican opponents of FDR who talked of “socialism,” “the foot in the door,” “fascism,” and so forth had a substantial point. A new world was being set in motion. The pragmatic case-by-case problem solvers were ignoring a whole set of consequences – the dynamics of interventionism. Expanding entitlements became the way that countless politicians, both Democrat and Republican, were elected and re-elected.

Now we see the unsustainability of the current entitlements built on the New Deal “principle.” And then we see a government creating a large new one in the midst of the crisis. We are told that Obamacare will save money. Like all of the other entitlements?

We also see the folly of many of the New Deal institutions like Fannie Mae and later Freddie Mac. We see their role in the housing bubble.

Now we see the folly of a monetary and fiscal policies based on temporary expedients. Economic agents cannot rationally plan when the role of the state is so uncertain and so liable to come up with arbitrary policy interventions, as in the recent bailouts. In many ways, the government told us that the ordinary laws of economics and classical wisdom about sound policy have been temporarily – but indefinitely – suspended.

Of course, the consequences both for policy and the future of economics depend on the interpretation of the financial crisis and the Great Recession. What caused them? What policies are conducive – or at least do not inhibit – recovery. (My late colleague Ludwig Lachmann used to say, “People no doubt learn from experience, but what do they learn?”)

Austrians failed to carry the debate within the economics profession and among the public intellectuals and economic historians after the Great Depression. Will they once again?

I venture the prediction that they will fare much better this time – especially if we close ranks with those of a similar mindset. There are many more Austrian economists now. In the thirties and forties the profession had become depleted of Austrians. The Keynesian Religion had triumphed (by the way, it was to a certain extent a religion – witness the statements of Paul Samuelson, Joan Robinson, Austin Robinson and others). It is true that today Austrians do not occupy the highest positions in the profession. But we are still here reminding everyone, constantly, of our ideas.

Yet there is a critical deficiency. We continue to lack empirical work, on a large enough scale, to convince other economists that we have something relevant to say. The macro-economic framework has created a demand and supply for certain kinds of aggregated data at the expense of data that might be more useful to Austrians. (But I am reminded that George Stigler used to say, “It is no excuse to say the data are not available – you just must be clever.”)

This is where, perhaps, those non-Austrians with a similar mindset may be very important. We need good empirical researchers. I am, quite frankly, not interested in reviewing all of the qualms about certain kinds of econometric work. No single econometric result is definitive but little by little a case for taking a theory seriously can be built.

As I have said many times, I am not a macro or monetary economist. I entered into to all of this discussion as a political economist. I saw (and still see) the fate of free institutions and decent economic policy in the balance.

With a little bit of luck, lots of hard work, and a smart sense of making intellectual alliances, we can do better than Ludwig von Mises and Friedrich Hayek did during the Great Depression and its aftermath. We have their legacy as well as the new legions to make the case.

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