Keynes vs. Hayek

In rap!



Of course, thanks to FDR and the New Deal, Keynes became the most influential economist of the 20th century and a practical rock star in a field that was then only beginning to gain recognition. It was Keynes who pioneered the idea that government can spend its way out of a Depression, and this became the standard narrative of how the Great Depression was overcome. (Never mind the fact that FDR's attempt to buy America's way out of Depression only worsened it. It was arguably WWII that brought the US out of Depression.) However, unlike FDR, the current Keynesian-in-chief has no world-spanning war to end his economic woes. (Hey, Obama's from Chicago, and University of Chicago is Keynes' home away from home. Can't blame a corrupt Chicago pol for looking close to home.)

I count myself with Hayek. No economic theory as simplistic as Keynes' could explain everything without factoring in human behavior. We are not perfectly rational, and will not, on command, throw money into an economic cycle to keep the world going 'round. (note Ben Bernanke and Tim Geithner stand-ins loading up the drinks to keep Keynes hammered, lol!) In a dash of ironic backlash, the liquidity trap the Keynesians had hoped to avoid came anyway when all those billions of stimulus dollars languished in banks instead of going out to the true motor of the American economy: small to medium businesses.

The Keynes quote from General Theory ("The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.") that so many economists love to throw around (and is featured prominently in the Institute of Political Economy's bulletin board) is best refuted with a little Hayek. "The more civilized we become, the more relatively ignorant must each individual be of the facts on which the working of his civilization depends." (The Constitution of Liberty)

Keynes was like the Comte of economics: the guy who turned what should be a respectable vocation into a deified babble.

Thankfully, as with scientists, so with economists. Not everbody is a jackass.