Farewell to the Neo-Classical Revolution
LONDON – The looming bankruptcy of Lehman Brothers, and the forced sale of Merrill Lynch, two of the greatest names in finance, mark the end of an era. But what will come next?
Cycles of economic fashion are as old as business cycles, and are usually caused by deep business disturbances. “Liberal” cycles are followed by “conservative” cycles, which give way to new “liberal” cycles, and so on.
Liberal cycles are characterized by government intervention and conservative cycles by government retreat. A long liberal cycle stretched from the 1930’s to the 1970’s, followed by a conservative cycle of economic deregulation, which now seems to have run its course. With the nationalization of America’s two giant mortgage banks, Fannie Mae and Freddie Mac, following the nationalization earlier this year of Britain’s Northern Rock, governments have started stepping in again to prevent market meltdowns. The heady days of conservative economics are over – for now.