Keynes VS Hayek

[csgators]

I saw these videos and I thought it was a great way to get people think about the two major schools of economics (Keynesian VS Austrian)

 

http://www.youtube.com/watch?v=d0nERTFo-Sk&feature=player_embedded

 

http://www.youtube.com/watch?v=GTQnarzmTOc&feature=player_embedded

 

I personally think the Austrian school (Hayek) has it right but what do you guys/gals think?

[Harbringe]

Keynes is the guy telling people you needn't worry , just borrow and spend your way past the problem .Which is what people want to hear .Hayek is the guy saying that is the problem , your not solving anything your just putting it off for another day.So in the Keynesian model which is a boom to bust model what your putting off for another day is a massive depression or a massive war (hopefully not the war).This current situation in the economy isn't over they just borrowed their way past it (putting you Americans on the hook for approx 7 - 9 trillion dollar).Sadly when what they have done comes for its day of reckoning , that will be the day people will realize Hayek was right , but of course by then it will be too late.

[csgators]

Keynes is the guy telling people you needn't worry , just borrow and spend your way past the problem .Which is what people want to hear .Hayek is the guy saying that is the problem , your not solving anything your just putting it off for another day.So in the Keynesian model which is a boom to bust model what your putting off for another day is a massive depression or a massive war (hopefully not the war).This current situation in the economy isn't over they just borrowed their way past it (putting you Americans on the hook for approx 7 - 9 trillion dollar).Sadly when what they have done comes for its day of reckoning , that will be the day people will realize Hayek was right , but of course by then it will be too late.

 

You are correct of course IMO. The trap with Keynes is that his theory could work in the sense that communism could work. You need to suspend reality in terms of human nature. If the government ran surpluses during boom times and then ran deficits during busts, it would help moderate both the high and low swings of the economy but politicians will never actually do it as it was proposed. They simply increase spending during booms as revenues pour in. Once a recession sets in they will never cut any programs or even the rate of growth of any program and then they will pile on stimulus spending creating even bigger deficits.

Edited April 29, 2011 by csgators

[evilneko]

Reading up a bit on Hayek now, but some first impressions:

 

So what is Hayek's plan? How would he deal with our current situation? They should've worked that into the lyrics somehow, or if they did it's not very clear. (I think I've found the answer in my reading, but I'd rather not comment on it til I've read more)

 

Keynes is right about one thing: we'd be a lot worse off if not for the bailout. Had GM been allowed to fall (what, you think Ford would buy them?) tens of thousands (possibly well over a hundred thousand as related industries either fail or downsize as a result) more people would be out of work, and that means more spending on unemployment (which in itself, is a good thing, unemployment benefits are one of the best stimulus methods, but it's better to have those people employed), less tax revenue, and less consumer spending.

[csgators]

Hayek is basically the intellectual successor to Adam Smith. The theory being that the "invisible hand" controls the market better than a central planner. The invisible hand is basically the combined actions of all the people in a market. By allowing free people to conduct free trade, the market will set values and allocate resources correctly with no interference. If people really like bananas then they will consume more of them and the price will rise. As the price rises other people will realize that they could take advantage of the high price of bananas and use their land to grow them. As more people grow bananas the price will come back down. All of this happens with no interference from the government. The usual government relation to people wanting bananas and the price being high would be to put price controls on bananas or subsidize banana farmers to make the bananas cheaper (but never addressing the root issue of high demand and low production).

 

The governments job in a free market is to use sound fiscal policy to maintain a stable currency but not to interfere in boom and bust cycles. It is the natural inclination to interfere that exacerbates the problem and makes both the booms and the busts more extreme. The reason that interference will always make the problem worse is that the central planner does not have all the information needed to properly intervene. By nature that knowledge is dispersed in to every person in the market. The fact that the answer is essential to stand back and let the market work makes it a tough sell because people always feel we need to do something, anything, to resolve whatever current problem we percieve.

[marharth]

As I said in my other post, having free markets with no regulations is insane.

 

Businesses as a whole will do what they can to make as much money as they can.

 

You make money off putting fake ingredients into food that can be extremely hazardous to health? That's great!

 

Fillers cost less money, so that's great in a completely free system.

 

You want to make a new drug that can have bad long term health effects? That's great in a completely free market. Trick people into buying them and you make a ton of money!

 

Your a weapons manufacturer and you make money off wars? It must be great since you make money off it!

 

What's that? You make money off buying politicians as well since its a long term investment? Well that has to be great since your making money off it!

 

 

 

A completely free market will always fail. If someone does not regulate it the big businesses could do many things that mess up the country and the economy.

 

 

A businesses could make a huge investment and have it fail on them, making them crash down.

Or a businesses could become too big to the point that government can't do anything but help them.

Sound familiar?

Edited May 1, 2011 by marharth

[csgators]

As I said in my other post, having free markets with no regulations is insane.

 

There needs to very limited regulation. Do you really think big business dislikes regulation? They love it, it creates barriers to entry and helps protect their market position. Fraud is fraud and adding more regulations after Enron doesn't change the fact that what they were doing was illegal under the existing laws of the time, that's why people went to prison.

 

Businesses as a whole will do what they can to make as much money as they can.

 

Sort of. Businesses want to make money both in the long and short term. How long do you think any restaurant will stay in business if their customers keep getting sick? In other words doing unethical things will only gain you money in the very short term so it is a very unusual practice especially with modern media and communications available. I really don't think a snake oil salesman could hit very many towns today before people knew who he was before he showed up.

 

You make money off putting fake ingredients into food that can be extremely hazardous to health? That's great!

 

Fillers cost less money, so that's great in a completely free system.

 

I am all for labeling ingredients and truth in advertising. That said how long do you think these guys would last selling things that are harmful to their customers?

 

 

You want to make a new drug that can have bad long term health effects? That's great in a completely free market. Trick people into buying them and you make a ton of money!

 

Instead lets create a massive bureaucracy that makes it so only the largest of companies can possibly get a drug approved so we can then turn around and demonize big pharm. If I am dying from a disease I would like the option to try whatever I want to stay alive, the FDA can take a hike.

 

Your a weapons manufacturer and you make money off wars? It must be great since you make money off it!

 

Maybe if the people made our politicians actually declare war we would have a few less of them. But how much power do you really think one industry has? Enough to influence a president to use force? I sure hope not.

 

What's that? You make money off buying politicians as well since its a long term investment? Well that has to be great since your making money off it!

 

Every new power you grant the government you are granting to the corporations by fiat. So why do you want to give the government more power?

 

A completely free market will always fail. If someone does not regulate it the big businesses could do many things that mess up the country and the economy.

 

Show me an example. There have been very, very few true free markets. The few times it has come close were resounding successes. 19th century America and British ruled Hong Kong are prime examples.

 

A businesses could make a huge investment and have it fail on them, making them crash down.

Or a businesses could become too big to the point that government can't do anything but help them.

Sound familiar?

 

The Hayek argument is you let them fail. Bad business practice must have consequences. As the video states, Capitalism is a profit and loss system. The loss is just as important as the profit. By bailing out these companies we are reward the worst companies and punishing the companies that did it right creating no intensive to adhere to sound business practices.

[marharth]

A businesses could make a huge investment and have it fail on them, making them crash down.

Or a businesses could become too big to the point that government can't do anything but help them.

Sound familiar?

 

The Hayek argument is you let them fail. Bad business practice must have consequences. As the video states, Capitalism is a profit and loss system. The loss is just as important as the profit. By bailing out these companies we are reward the worst companies and punishing the companies that did it right creating no intensive to adhere to sound business practices.

The thing is, they are too big to fail.

 

If certain businesses crash the entire economy will come with it.

 

Businesses can grow to a point that they control the government, we can't let that happen.

[csgators]

A businesses could make a huge investment and have it fail on them, making them crash down.

Or a businesses could become too big to the point that government can't do anything but help them.

Sound familiar?

 

The Hayek argument is you let them fail. Bad business practice must have consequences. As the video states, Capitalism is a profit and loss system. The loss is just as important as the profit. By bailing out these companies we are reward the worst companies and punishing the companies that did it right creating no intensive to adhere to sound business practices.

The thing is, they are too big to fail.

 

If certain businesses crash the entire economy will come with it.

 

Businesses can grow to a point that they control the government, we can't let that happen.

 

Show me an example of one business failing and killing the entire economy. Sure it will have an impact but we have bankruptcy laws for a reason. Any assets of value will be bought up by others and the failure and loss will show other companies what not to do. The competitors of the failed business will benefit by gaining the customers of the failed venture and are rewarded for doing things the right way.

[marharth]

A businesses could make a huge investment and have it fail on them, making them crash down.

Or a businesses could become too big to the point that government can't do anything but help them.

Sound familiar?

 

The Hayek argument is you let them fail. Bad business practice must have consequences. As the video states, Capitalism is a profit and loss system. The loss is just as important as the profit. By bailing out these companies we are reward the worst companies and punishing the companies that did it right creating no intensive to adhere to sound business practices.

The thing is, they are too big to fail.

 

If certain businesses crash the entire economy will come with it.

 

Businesses can grow to a point that they control the government, we can't let that happen.

 

Show me an example of one business failing and killing the entire economy. Sure it will have an impact but we have bankruptcy laws for a reason. Any assets of value will be bought up by others and the failure and loss will show other companies what not to do. The competitors of the failed business will benefit by gaining the customers of the failed venture and are rewarded for doing things the right way.

If the bailouts did not happen the entire economy may not of crashed, but it very well could of led to it. It would have effected almost all companies on a global scale.