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Chile, History, and Sweet Water Turned Bitter

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  • Chile, History, and Sweet Water Turned Bitter

    For decades there has been a clear fault line in western economic theory between “sweet-water” and “salt-water” economists. The names derive from the geography of their centers of power: the salt-water economists are based in universities on the two coasts of the United States. The sweet-water economists count the University of Chicago as their Mecca, where for years Nobel laureate economist Milton Friedman, lord high priest of monetarism and champion of the self-regulating free market, reigned supreme. The bi-coastal salt-water economists followed the path of* John Maynard Keynes, and their newly emerged leader is Nobel laureat Paul Krugman.

    The salt-water school is interested in a blend of fiscal and monetary policy and supportive of the idea that government needs to regulate markets to obtain maximum benefit for society. The sweet-water school, on the other hand, has long championed the notion that government should stay out of markets because they were regulated sufficiently by a concept called My Imaginary Friend.

    I’m sorry. Did I say that out loud? I meant, of course, The Invisible Hand. You may remember from a previous column of mine that the Invisible Hand is a concept which Adam Smith, in the massive 378-thousand words of his master work An Inquiry into the Nature and Causes of the Wealth of Nations, mentions exactly once, and which has since been preached as the central argument of The Wealth of Nations. It’s not, but that’s almost beside the point.

    This central argument, as it is now articulated, is that if everyone in a market ...


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