Keynesian economics is a failure. So, too, is the Keynesian heresy known as Friedmanite monetarism:
The entire theory of monetarism is coming undone in spectacular and empirical fashion, which leaves the entire status quo exposed. All that is left in defense is the same old refrain of “it wasn’t big enough.” That’s great for those in the ivory towers blinding themselves to the reality of a lost generation of Italians, Spaniards, French and now even Germans; a listing to which even the FOMC is worried may yet add Americans.
Why anyone ever expected a different outcome is due solely to unrepentant ideology, since these central banks are following almost exactly the Japanese “model.” The global economy is just following along as money dies. Though Greece will be blamed as contagion, it will ultimately be proved as Japanification by monetary proxy.
For those who don’t understand the significance of the graph, both Germany and Italy are subject to the same monetary policy of the European Central Bank. The chart clearly shows that the very low interest rate policy presently being maintained by the ECB is not capable of producing full employment in Italy, contra monetarist theory, thereby indicating that other factors are, as it happens, more significant than the supposedly all-important interest rate.
As I’ve mentioned in the past, the ironic thing about the economist Milton Friedman is that he was much more sensible with regards to politics than economics.