Economics MC battle

SLUSK

This is a little lighter side to the economics debate. You have what I would call a "MC battle" between John Maynard Keynes and F A. Hayek.

Fear the Boom and Burst - a Hayek vs Keynes Rap Anthem
http://www.youtube.com/watch?v=d0nERTFo-Sk&feature=player_embedded#

Hayek advocates free markets while Keynes advocates government intervention and deficit spending.

Slouch

At the risk of turning this into a serious thread:

Have Hayek's ideas ever been implemented with the same degree of success as Keynesian policies? I'm no economist, but as a historian I'm fairly familiar with the success of Keynesianism in the post-war period. I know very little about Hayek though. I'd like to see what economists think.

silverharp

Slouch wrote: »

At the risk of turning this into a serious thread:

Have Hayek's ideas ever been implemented with the same degree of success as Keynesian policies? I'm no economist, but as a historian I'm fairly familiar with the success of Keynesianism in the post-war period. I know very little about Hayek though. I'd like to see what economists think.

Thatcher was a fan of Hayek but I wouldnt be too familiar with what direct impact his work had on her or her policies, maybe the privatisation area I guess.

Slouch

Silverharp2 wrote: »

Thatcher was a fan of Hayek but I wouldnt be too familiar with what direct impact his work had on her or her policies, maybe the privatisation area I guess.

I'm aware that both Thatcher and Reagan appointed followers of Hayek to positions of prominence, but my question was whether any Hayekian (Is that a word?) policies have been successful (or even properly implemented).

nesf

Slouch wrote: »

I'm aware that both Thatcher and Reagan appointed followers of Hayek to positions of prominence, but my question was whether any Hayekian (Is that a word?) policies have been successful (or even properly implemented).

Hayek was more of a theoretical economist than a policy maker (indeed Keynes may be viewed in a similar light to an extent). His main policy relevant position about the business cycle just doesn't seem to match reality very well. It definitely has some excellent insights about the dangers of overly low central bank interest rates being able to overheat an economy and cause a boom & bust* but few modern economists would hold the view that this is the core/sole cause of the boom & bust cycle (i.e. it's very obvious that human psychology and irrational attitudes towards risk that are core issues with respect to the business cycle are at least partially to blame (i.e. Keynes' Animal Spirits)).

You don't see his theories being implemented precisely because they'd require Governments to do nothing during a recession with is politically untenable really.


*I should expand on this. Basically the severe problem with this is that the business cycle far precedes the introduction of central banks and even when there was a quasi-free market for banks prior to the creation of the Federal Reserve in the early 20th century there were regular booms and busts in the 19th century. The Austrian view is still useful in the sense of giving us an insight into one of the ways that booms can be caused/exacerbated but it's very difficult to justify it as being a correct explanation for the existence of the business cycle in the first place.

silverharp

Booms are very simple affairs at their heart. Some asset class sees a rise in price, it facilitates borrowing, creates leverage and at some point it collapses in on itself. The only question I see of interest is what factors increase the amplitude of the bubble. I think even Fisher had written after the fact about the build up in credit that led to 1929. However roll on to Greenspan and Bernanke and their whole policy stance is to claim not to be able to see them and to focus on a narrow CPI to guess at interest rates, so their starting point is, there is a crash we must do something.

Slouch

nesf wrote: »

Hayek was more of a theoretical economist than a policy maker (indeed Keynes may be viewed in a similar light to an extent). His main policy relevant position about the business cycle just doesn't seem to match reality very well. It definitely has some excellent insights about the dangers of overly low central bank interest rates being able to overheat an economy and cause a boom & bust* but few modern economists would hold the view that this is the core/sole cause of the boom & bust cycle (i.e. it's very obvious that human psychology and irrational attitudes towards risk that are core issues with respect to the business cycle are at least partially to blame (i.e. Keynes' Animal Spirits)).

You don't see his theories being implemented precisely because they'd require Governments to do nothing during a recession with is politically untenable really.


*I should expand on this. Basically the severe problem with this is that the business cycle far precedes the introduction of central banks and even when there was a quasi-free market for banks prior to the creation of the Federal Reserve in the early 20th century there were regular booms and busts in the 19th century. The Austrian view is still useful in the sense of giving us an insight into one of the ways that booms can be caused/exacerbated but it's very difficult to justify it as being a correct explanation for the existence of the business cycle in the first place.

Nice concise answer. Thanks!