The Current Crisis Has a Silver Lining (Financial Crisis) (Report‪)‬

Introduction Capitalism has had many crises in its centuries-long history and in many cases the crisis has led to improvements in the way capitalism has operated--for example, the improvement in central bank institutions and policies in a number of countries that resulted from the Depression of the 1930s. This article predicts that the cloud of the current crisis will have a silver lining with two interrelated aspects. One is the bringing forward in time of the decisive defeat of the view of the role of government held by Hayek and popularised by Milton Friedman. The other is the rehabilitation of fiscal policy as an important part of the tool kit used to minimise the inherent instability of capitalist societies--usually called the business cycle. Both of these outcomes can be considered in the short run or longer run contexts. Policies around the OECD since August 2007, and more particularly over 2008, have already embodied these two outcomes. A similar achievement in the long run will be more difficult and may require a public education campaign similar to that mounted by Hayek and his disciples, albeit in the opposite direction.