Economically speaking, it was a surprisingly normal year

THIS year has turned out to be a very good one for classical and traditional approaches to economics. Exotic doctrines have performed poorly, while standard predictions — based on common sense and straightforward mechanisms of operation — have done well.

Start with macroeconomics. The big story of the year has been inflation, and the two biggest culprits are in line with standard theory: growth in the money supply and hikes in energy prices. Over a recent two-year period, the US Federal Reserve allowed the M2 money supply to rise by about 40 per cent. It is no surprise that prices increased so much.

Not long ago, economists insisted that demand shortfalls were perpetual and that stimulus was almost never excessive. That extreme version of the Keynesian view has been laid to rest, while a version of Milton Friedman’s monetarism is ascendant once again.