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Transcript
Article #1:
The Keynes-Hayek showdown
By Nicholas Wapshott
Eighty years ago an anguished debate between two
economists began in Britain — and came to shape the
politics of the world after World War Two. The differences
between John Maynard Keynes and his nemesis
Friedrich Hayek sharply described alternative approaches
to addressing the ebb and flow of the business cycle, with
Keynes arguing that to put the jobless back to work
governments could and should intervene in the market
and Hayek insisting that such actions were based on an
inadequate understanding of how economics really
worked and would only delay the day of reckoning.
Seventy years ago, Keynes’s ideas were eagerly
embraced by young American economists who began implementing the Cambridge economist’s ideas first in Franklin Roosevelt’s
administration, then in every government until Jimmy Carter, when Hayek’s disciple Milton Friedman introduced Hayek’s ideas as
a guiding principle and Ronald Reagan tried to implement them on a national stage.
The Keynes-Hayek debate has never been so topical. Today the fault line between right and left can be defined as the difference
between those, like President Obama, who believe that the broken economy can be fixed by the government providing a giant
fiscal stimulus, and those, like all the Republican presidential contenders, who believe government in America is too big and
should be dismantled to make way for the operation of the free market. While Obama pushes his Jobs Bill, which would inject
about half a trillion dollars into the economy, the GOP in the House is preventing any such manipulation of the economy from
taking place.
The belated American Keynes-Hayek debate was provoked after the stock market crash of 2008 and the freezing up of the banks
and Wall Street financial institutions the following year. A trillion-dollar Keynesian stimulus was quickly followed by a Hayekian
wave of buyers’ remorse that deemed that the swift reduction of the national debt was more important than giving jobs to the
unemployed. Congressman Paul Ryan’s economic plans urging fiscal austerity without delay were supported by the Tea Party
movement that demanded that new government borrowing cease. Last summer’s debt ceiling talks continued the battle and was
met by Obama’s doomed Jobs Bill by which the Democratic president is attempting to pin blame for high unemployment on
Republican inaction.
Keynes and Hayek first argued over whether deliberately creating new demand in an economy — by cheap money lent by banks,
by slashing taxes, and by governments directly investing in public works programs –- could be sustained, or whether, as Hayek
argued, such measures would only in the long run delay the day of reckoning. Keynes’s famous riposte was that even temporary
jobs were worth having because “in the long run we are all dead.”
After publication of Hayek’s The Road to Serfdom in 1944, a second argument was opened against the Keynesians: it was
suggested that the increase in the size of government that accompanied widespread intervention in the economy tended towards
a loss of individual freedom and the rise of authoritarianism, a charge that was hotly denied. It is this accusation of inadvertently
inviting tyranny that has sharpened the language in what was always a vituperative clash of personalities and ideas.
The ever-quotable Keynes once remarked that “even the most practical man of affairs is usually in the thrall of the ideas of
some long-dead economist.” Those words of wisdom have never been more true than today as we face next November a
Keynes-Hayek presidential election.
Nicholas Wapshott’s “Keynes Hayek: The Clash That Defined Modern Economics” is published by W. W. Norton.
Article #2:
KEYNES VS. HAYEK
The ideas of John Maynard Keynes and Friedrich von Hayek have dominated the economic landscape since the end of World War
II. Both of these influential economists had distinct ideas about economic freedom--ideas that were very clearly in
opposition to each other.
Following World War II, one major economic question dealt with the appropriate role for government in the
economy. John Maynard Keynes, an English economist, developed theories that called for a large role for
government in the economy. Daniel Yergin and Joseph Stanislaw (1998), explain Keynes'
argument in this way: "The government would borrow money to spend on such things as
public works; and that deficit spending, in turn, would create jobs and increase
purchasing power. Striving to balance the government's budget during a slump would make things
worse, not better. Keynes's analysis laid the basis for the field of macroeconomics, which treats the
economy as a whole and focuses on government's use of fiscal policy--spending, deficits, and tax. These
tools could be used to manage aggregate demand and thus ensure full employment. As a corollary, the
government would cut back its spending during times of recovery and expansion."
Keynes' views on economics were challenged by Friedrich von Hayek, who argued that "the problem was that under central
planning, there was no economic calculation--no way to make a rational decision to put this resource here or buy that good
there, because there was no price system to weigh the alternatives." Central planners could make technical decisions but not
economic ones. To Hayek, less government intervention meant more economic freedom. He believed that when people are free to
choose, the economy runs more efficiently.