Remember Round 1? Here now, the two economics heavyweights square off again, in spectacular rap-ified fashion:
You can find more related material here. It is the co-creation of Russ Roberts, who you may remember making some provocative arguments in our “What Would the World Look Like If Economists Were in Charge?” podcast.
And here‘s a Q&A with Roberts about the videos.
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. You can also watch it on 
*head bobs*
That was great! Actually decent music and great ideas!
Love it. Keynesianism only works if we assume the government has a big pile of money lying around just waiting to be injected into the economy. This pile of money does not exist, so we have to borrow it, confiscate it from productive members of society, or print it. All of these methods have consequences that Keynesians don’t account for in their fancy models.
Keynesianism relies on fiscal policy to both speed and slow economic growth. The idea is that during boom years the government takes in more than it spends, retarding growth, and during bust years, it spends more than it takes in, spurring growth. The problem with keynesianism is it relies on smart courageous people to hold back during the boom cycle. That’s why it doesn’t quite work in the USA, call your congressman.
Hayek relies on incredible regulation interms of types and quality of goods. If there are real prices both parties to the transaction must fully understand the risks. It ignores market sentiment, and is certainly not a “free market.”
As for the case in the US and why there has been rather anemic growth for the last 30 years. Deregulation has caused the Hayek model to fall on its face, beginning in the S and L crisis, forcing Keynesian interventions. But having because most of the people who run the economy don’t really understand it they did not reimpose the regulations that had kept the economy fairly stable since the new deal. Then you had clinton monetary policy that failed to hold back growth durning the tech boom, leaving no keynsian option in the 2000′s when the economy crashed again. Then Greenspan did it again and the economy crashed the next decade. SO it is a failure of hayek since free market people don’t really understand what a function market requires and keynsians who wont put the brakes on an overheated economy.
Hayek makes sense in the context of market based pricing of risk. This requires regulation since risk allocation require symmetric information and there is a great benefit to asymmetric information.
Keynesians have issues when they don’t act to slow runaway economies, leaving little room to maneuver when it blows up in their face.
As for currency devaluation in a globally connected society, it is the only way to prop up an economy, through exports like the Chinese, when more traditional keynesian controls are no longer available.
Hot debate. What do you think?
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A very informed and well written post. But i must object to your assertion that Hayek falls on its face due to deregulation and you quote the S&L crisis. You ignore government intervention in interest rates via central banks which distorts temporal choices of households and producers. You also ignore intervention via governmnet guarantee of mortgage debt which started in the 1980;s
Its something great about Austrian economics that if you dig deep enough into any preceding boom, you find some artifical price distortion backed by keynesian or monetarist thinking at the root of it. The more interference in the preceding boom, the greater the misallocation and inevitably greater the calls for a ‘keynesian’ solution.
Best regards
“Its something great about Austrian economics that if you dig deep enough into any preceding boom, you find some artifical price distortion backed by keynesian or monetarist thinking at the root of it.”
I would argue that this will always be true in a Keynesian (non-freed) market (and is therefore meaningless).
In America, we live in an economy of correction, which tautologically means that ANY problem, or really anything, can be ‘traced’ back to a Keynesian correction. It would be foolish to suggest that because of this fact, only Keynesian corrections are to blame.
The truth is that because our market is ‘modified’, we cannot prove what would have happened in a given situation without those modifications.
Usually we would have had more poverty and less health insurance, economy especially business teaches us how to become more powerful than any of the others from the competition even by means we have to destroy them and steam peed them
The world’s first Keynesian must have been Joseph in the Bible.
He taxed Egypt heavily during the seven fat years, and induced government spending during the seven lean years.
Keynes thought spending money you don’t have is the key to prosperity, not saving what you do have for a rainy day. When people save, there are resources available to increase the ability to produce.
Government can’t ever seem to spend less during the good times. Instead it borrows and spends more because it can. Its easier to give everyone what they want. Until it isn’t and painful cuts have to be made during bad times. It is not to be trusted with the ability to manipulate the economy.
People, unsaddled with government “incentives”, naturally save for the future on their own. If we stopped forcing interest rates low, they will again.
I’m not sure that’s true. I think part of the problem with Keynsians is that is the way they practice it, but the theory suggests saving then spending, not spending then spending more.
Amazing cute video. Unfortunately, like in round 1, it is biased toward Hayek. In any case, I applaud the video because in a very brother sense bring the main concepts of each camp into view.
Actually, I see both theories complementary. It is like getting your car through a sharp curve; as you get into it you should slow down and once in the center of it, speed up to get out. So both slowing down and speeding up are not contradictory for a good handling of the vehicle. The only problem with a recession is to know where exactly is the inflexion point to make the change.
Hayek was a student of Mises.
Mises was a student of Bastiat