Keynes vs. Hayek

> Can’t we have an organic emergent economy in which an excess demand for money leads to insufficient demand for real goods and services?

I think the philosophical difference, and it was much better articulated in this video versus the first, has to do with the role of government spending (and wars and government jobs and…)

Defending government spending on particular projects, bailouts of particular sectors and socially-targeted tax rebates (Cash for Clunkers, mortgage interest, capital gains) on the argument of economic improvement is just absurd. I can think of no reason the government should manipulate markets in this way, and by implication deprive non-qualifying taxpayers of the power of choice. The results are often disastrous, with cash frittered away on unproductive projects and with questionable social benefit (what did Cash for Clunkers do for us, again?)

OTOH hand, putting dollars into the hands of people that will dump it directly into the flow of commerce without picking winners is a great way to stimulate the economy without market distortion. Payroll tax rebates and similar schemes advocated here are fricking fantastic ideas.

It is reminiscent of the original in which while Hayek supposedly supports monetary stability who would know it from what he says, more obsessed with
what doesn’t work than with what will.

Wow, any mention of Hayek and the austrian types pounce! In all seriousness, though, I really wish these neo-austrian types would stop assuming that the rest of us are stupid. We read Hayek, too! So, Greg, we know what Hayek said. Rick, we understand there’s a philosophical difference, but philosophy is not the same as science; if the goal is practical policy than you need to do better than that.

From a practical perspective, 80 years of research into the political economy have actually gone into answering the question of whether Hayek was right in his presumption that a decentralized economy is always preferable: the answer is no. The key insight being that the political process is like a market for aggregating information and neither politics nor markets work quite as well as Hayek thought.

“Can’t we have an organic emergent economy in which an excess demand for money leads to insufficient demand for real goods and services?”

The answer is somewhere between “yes” and “of course”. The “organic” analogy proves too much here. I mean an organism does get sick. And sometimes in ways that are self reinforcing. For me, I just always thought that Hayek and Keynes’s ideas compliment each other, for the most part (whatever they thought of each other’s ideas). Clearly that’s just me; but then I see inflation as information flow. With a downward nominal regidity higher inflation means that relative prices adjust to their “correct” levels more quickly. Hayek would say the same thing if he had understood that some prices did not adjust downward as fast as they do upward.

My biggest issue with these videos, though, is that Keynes and Hayek actually agreed on the issue here: that stimulus works like its supposed to. Hayek’s counterpoint was always different “yes, it works; but you would be better off not trying”.