In his Friday column, Paul Krugman lamented that more of his fellow M.I.T. graduates -- most of whom follow Keynesian economic philosophy -- didn't have more of an impact on monetary policy during the most recent financial crises. But, he added, the fact that they "are in the ascendant, and deservedly so" is a welcome sign.
He listed a number of M.I.T.-trained economists who "play an outsized role at policy institutions and in policy discussion across the Western world" -- including Ben Bernanke, European Central Bank President Mario Draghi, International Monetary Fund Chief Economist Olivier Blanchard, as well as his eventual replacement, Maurice Obstfeld -- and argued that their prominence means that the next time governments are faced with the problem of high unemployment and high inflation, they won't turn again to Milton Friedman or any of his University of Chicago acolytes for answers.
The Fed, led by Mr. Bernanke, ignored right-wing pressure and threats — Rick Perry, as governor of Texas, went so far as to accuse him of treason — and pursued an aggressively expansionary policy that helped limit the damage from the financial crisis. In Europe, Mr. Draghi’s activism has been crucial to calming financial markets, probably saving the euro from collapse.
On other fronts, however, the M.I.T. gang’s good advice has been ignored. The I.M.F.’s research department, under Mr. Blanchard’s leadership, has done authoritative work on the effects of fiscal policy, demonstrating beyond any reasonable doubt that slashing spending in a depressed economy is a terrible mistake, and that attempts to reduce high levels of debt via austerity are self-defeating. But European politicians have slashed spending and demanded crippling austerity from debtors anyway.
Meanwhile, in the United States, Republicans have responded to the utter failure of free-market orthodoxy and the remarkably successful predictions of much-hated Keynesians by digging in even deeper, determined to learn nothing from experience.