Comments on: The Keynes-Hayek showdown Thu, 21 Jul 2016 07:57:19 +0000 hourly 1 By: psikeyhackr Sat, 12 Nov 2011 18:25:58 +0000 What did Keynes or Hayek say about Demand Side Depreciation?

It is 42 years after the Moon landing. The economics profession cannot specify what has been lost on the depreciation of automobiles each year for any country or for the planet. So if planned obsolescence has been going on how would that affect the figures?

But we are supposed to care about these pseudo-debates about the ideas of a man who died 23 years before the Moon landing? We don’t even know the depreciation during those 23 years.

By: larrymotuz Fri, 11 Nov 2011 00:54:52 +0000 A trillion-dollar Keynesian stimulus? Really? Funny no one noticed that at the time. I didn’t notice anything near that size in terms of Keynesian ‘stimulus’. Spending perhaps…but certainly not stimulus.

By: Stuttgart88 Thu, 10 Nov 2011 16:07:34 +0000 I’m reading Wapshott (I bought it from the US) and he was very quick to point at that Friedman and Hayek were at odds on many things, only really agreeing that prices were the important signal sent by the market and price manipulation was wrong. So Wapshott is exempt from criticism on that point.

With regard to the reasons for the crisis, I can see merit in both Keynes & Hayek. Keynes, like Herbert Simon who won a Nobel prize for saying something similar, felt that the classical assumption of “rationality” was inapplicable to man. Man simply wasn’t clever enough to be a fully rational profit maximiser. Instead he was a momentum investor with a bias to the short term, and hence the market often witnessed “waves of irrational psychology”. Banks too were pro-cyclical, lending too much in good times and not enough in bad times. Later, post-Keynesians like Hyman Minsky offered very plausible (especially in hindsight) and simple explanations of financial crises. Minsky warned that long economic expansions were potentially deadly because they lead to a build up of “Ponzi debt” which is what happened. He also predicted in the 1980s that anything that could be securitised, would be. In this context, Greenspan’s “put” which minimised market downturns and prolonged the upturn, and his relaxed view on financial innovation can be shown to have been foreseen as deadly by Minsky.

Both Keynes and Minsky recognised that free markets and the banking sector had to be regulated to keep activity within normal bounds, and not going from boom to bust.

Hayek (I think) contended that artificially low monetary policy distorted the balance between saving and investment, and led to a build up of “malinvestment”. This can be seen to have happened too. So Keynes and Hayek were compatible in describing the roots of the crisis. Tut, tut, Mr. Greenspan.

Technically I think Hayek’s prescription to resolve the crisis is correct, but morally Keynes’ solutions are better. Propping up failed institutions introduces moral hazard and rewards failure by socialising losses. However, the social cost of prolonged unemployment and poverty justify state sponsored solutions. Hayek felt that in the long run free markets would allow the economy to self-heal, but as Keynes famously said “in the long run we’re all dead”.

Wapshott describes Hayek’s contradictions very well. Despite being very pro free markets, he recognised that utilities and other natural monopolies required regulation, as well as recognising other market failures. As Keynes said, they both recognised that a line needs to be drawn where free markets were left unfettered, they just disagreed where that line should be.

Hayek was, surprisingly to me, very anti-Conservative. He would have loathed the Tea Party. Conservatives were too nationalistic (hear hear) and not open to change. They wanted to retain the dominance of wealthy interests in the system and as such, were potentially as tyrannical as socialists. Ironically, Wapshott points out that Hayek never once worked in the private sector! Keynes was a master trader & speculator so clearly did believe in the markets. He distrusted socialism and advocated spending to alleviate the unemployment that would lead to extreme politics.

Both Keynes and Hayek have been badly misrepresented by many. Keynes, as said above, wanted intervention to dampen surplus eras too and only wanted deficits when necessary to alleviate periods of insufficient demand. His multiplier theory still holds water as far as I know. Keynes, it is often forgotten, wanted looser monetary policy to accompany his fiscal policies. He wasn’t “one or the other”. I read Peter Clarke’s bio of Keynes earlier this year. In that book I think it is said that Keynes, in all his works, only ever mentioned the word “deficit” a handful of times.

Was rescuing AIG and RBS, and “cash for clunkers” really Keynesian? I don’t think so.

By: Petarghh Thu, 10 Nov 2011 14:41:28 +0000 Nice points Eleno.

Let me dis-spell a common Keynesian myth to counter those who say ‘stimulus’ is what we need. You forget that the ‘stimulus’ is simply shifting coins from the economy’s left pocket to it’s right. The government can’t create wealth, it can only tax and then redistribute. And in this case it’s shifting from the private sector, which is indisputably more efficient and creates more productive jobs, to the public sector, which is notoriously more inefficient and creates unproductive jobs. This is indisputable.

But yes, throw in the printing press and the government can ‘create’ this wealth (aka debt). But the problem with this is that no new resources, the means to produce, are conjured into existence with this paper money. You still have an economy capable of the same output only you are pulling resources to a certain governmental-designated sector with this new money (which is also inflationary). So no, governmental stimulus is not the solution, it is the problem. It is taking capital and flushing it down the toilet, or worse, inflating bubbles that burst and all they leave behind is the debt we accrued to inflate them.

HakChoi trying to substantiate economy-encompassing theories such as these with obtuse mathematical theory to predict outcomes is folly. It’s not reality. Seriously, one man and a few underlings deciding on the interest rate of the largest economy in history? Give me a break.

It still baffles me that we don’t listen to Austrians with more attentiveness when they have warned of this exact crisis and given a play by play of startling accuracy years and years before. We seem to look to the people who created the problem, who had no idea the crisis was coming to fix it when they don’t understand what they did to create it in the first place.

One more thing, to the person who said that the Great Depression happened because we did ‘nothing’ Hayek-style. You need to stop reading revisionist history and understand that Hoover and FDR were two very interventionist presidents and what was practised preceding and anteceding the collapse of 1929 was not Hayek-inspired capitalism (although it was closer to it that what we have now). The reason the Depression went on so long is the same reason Japan has been in the doldrums so long, they don’t let their economies correct and try and prop up unsustainably structured economies with inflationary monetary policy. They also did strange things like price fixing.

By: HakChoi Thu, 10 Nov 2011 06:51:28 +0000 So far, Keynes has fared better than Hayek in their race to attract supporters. One of the reasons can be that Keynes has an analytical theory, while Hayek uses one words. Hayek, in his Road to Serfdom, attacks monopoly and especially state monopoly, but he offers no analytical theory. So far, no Hayekian economists can offer better monopoly model and prove more significant damage done by monopoly. Gordon Tullock has made some contribution in the latter aspect, but not in the former one. In addition, the Hayekians also need to disprove Keynes’ theory analytically. These, and many other wrong economic theories, are discussed in my ebook “Economics in Deep Trouble” (Amazon).

By: qwertyasdf Wed, 09 Nov 2011 17:39:05 +0000 Where’s the video of the debate? Was it not recorded?

By: CounterSophist Wed, 09 Nov 2011 06:55:53 +0000 “This approach is similar to a primitive religion, when the sacrifice of a virgin fails to appease the Volcano gods, they conclude that maybe the first wasn’t really virgin enough and sacrifice some more virgins.”

Ahem… then there was the time that the Progressive Left was outraged that anyone would view yet another debt-financed ‘stimulus’ with some suspicion, and did heap scorn upon them, saying, debt is savings, consumption is production, and war is peace…

By: NewsAddict Wed, 09 Nov 2011 00:22:57 +0000 QuietThinker,
I’m a staunch Hayekian but I have to admit that your points are pungent and your mataphors more so. Nevertheless, Bush’s “crony capitalism” is far from a free-market system. Hayekians are not saying: “Give us more Bush” or “sacrifice more virgins”, we’re saying the exact opposite, “Give us less Bush” and “sacrifice more Keynesians”.

By: DrJJJJ Tue, 08 Nov 2011 23:30:18 +0000 Are we truely free if government doesn’t allow us to fail! Is it cost effective or proper for government to try to be everything to everyone? Even our poorest in America make more than 90% of the rest of planet earth! We’re living miles above our means and the resst of the globe and next year we’ll be the great adjustment folks-prepare for deflation for years! Hope we come out the other end a better country-with a balanced budget somewhere in the US someday!

By: Omen100 Tue, 08 Nov 2011 23:00:41 +0000 It is interesting and important to discuss these theories. This is what they are, just theories because we have not yet managed to get things right. I feel there are other issues that need to be taken in account. These are Misuse of Power, Corruption of our Political and Financial system, Lack of Democratic participation by ALL voters through poverty and poor education, mis-use of psychological knowledge and financial power to manipulate the electorate,……we can come up with a long list. Unless we have a true democratic system and true level playing field in all human activities, including an impartial legal system, we won’t achieve anything through such debates.