Q&A: Keynes or Hayek - did the crisis prove either heavyweight right?

StevieJ

So what do you think?

The row about whether governments should spend us out of recession or let market forces deal with the mess is hotting up again. But who is right?

http://survey.citywire.co.uk/money/qanda-keynes-or-hayek-did-the-crisis-prove-either-heavyweight-right/a432603?ref=citywire-money-featured-articles-list

nicko33

either of them have anything to say on not getting into a mess in the first place?

Radiantsoul

nicko33 wrote: »

either of them have anything to say on not getting into a mess in the first place?

Hayek would have let banks fail in the past and the lesson of moral hazard ought to have encourage greater prudence. Also under Hayek interest rate policy would be very different.

Radiantsoul

Governments have pursued policies Keynes would have approved in that they have engaged in deficit funded spending after reducing interest rates to the point of liquidity trap.

Masomnia

Radiantsoul wrote: »

Governments have pursued policies Keynes would have approved in that they have engaged in deficit funded spending after reducing interest rates to the point of liquidity trap.

But they did not pay down debt during boom times.

To be honest I don't think it has proven anything. Governments claim they have acted with sound Keynesian basis, but at the end of the day they didn't come through with the debt paying down bit. Hayek, I believe, argued that all this deficit spending would store up problems for the future so I suppose we'll have to wait and see on that one!

Generali

StevieJ wrote: »

So what do you think?http://survey.citywire.co.uk/money/qanda-keynes-or-hayek-did-the-crisis-prove-either-heavyweight-right/a432603?ref=citywire-money-featured-articles-list

I don't think it would be possible to say either is conclusively right on the basis of the last couple of years. You could argue that one key criticism of Keynsianism has been demonstrated recently however: as deficit spending has exploded, private borrowing has collapsed. The complaints of banks only lending on onerous terms to small businesses bears that out - why lend to a risky company when you can lend all you like to the Government and be guaranteed to get the money back?

vivatifosi

I was just going to provide a link to the rap when I noticed its embedded in the article. I love the Keynes vs Hayek rap, definitely worth watching (its long, about 6 mins plus credits), but sums up the differences beautifully while being very funny. I love the end statements credited to both also.

Here's a direct link:

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

PasturesNew

No idea. Heard of the first bloke, never heard of the second bloke. Never read anything on economics whatsoever.

Maybe I should, just been reading Rich Dad, Poor Dad and one of the lessons in there is to face things you're afraid of... and I think dull economics might be a key part of my understanding the world really.

tomterm8

Generali wrote: »

I don't think it would be possible to say either is conclusively right on the basis of the last couple of years. You could argue that one key criticism of Keynsianism has been demonstrated recently however: as deficit spending has exploded, private borrowing has collapsed. The complaints of banks only lending on onerous terms to small businesses bears that out - why lend to a risky company when you can lend all you like to the Government and be guaranteed to get the money back?

But correlation does not imply causation, as my old metrics professor used to drill into me.