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Keynes versus Hayek: Big government versus individual rights

Posted By Joanne Nova On June 26, 2011 @ 12:17 am In Funny stuff,Monetary History | Comments Disabled

Check these out. There’s been an ongoing war of ideas, Hayek vs Keynes, for eight decades and counting — and these videos sum it up consummately. This ongoing academic fight has shaped lives and countries for decades: booms, busts, unemployment, and possibly even wars.

Indeed it’s an ominous sign of the times that there is a resurgence of this debate. (The masses take no interest in monetary policy when times are booming.)

(If you are in a tearing hurry, skip the first minute).

I’m not a rap fan, but this is so good that, for the first time, I have to admit rap has its role.

There’s a second in the series and it’s even better.

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There are parallels between climate and economics. Using global markets against “man made global warming” is a Keynesian solution to the weather.

The big left-right divide is not about conservative versus progressive. The “progressives” want us slow down, and give  up cars, flights and air conditioners, and the “conservatives” fight to keep development rolling. Ultimately the left right dichotomy boils down to the individual versus the collective. Thus Keynes (the big government solution) is the collective end, and Hayek (let the free market decide) makes the most of individual intelligence and choice.

On these YouTube videos, the Keynsian econs students wield jargon with flair in the comments, but ultimately, they miss the point. Could Keynesian “stimulus” packages be good at some point in the economic cycle? Sure. But do we have to have a cycle? If there were no low interest rate fueled booms, there would be no need for stimulus bailouts when it busts.

Fame and rewards go hand in hand with being a champion of collective action. It suits those who hold the largest purse strings in the land. Those who oppose pumping that purse, always push against the tide.

The Hayek team stands up for individual rights, and has few big backers, not government agencies, not bankers, not big business. The skeptics stand up for individual rights — for the right not to have liberties and finances confiscated for no good reason. If the skeptics win, millions benefit. But if alarmism wins then, like when Keynesianism reigns, big government and some financial institutions grow larger — government power and patronage increase. Paradoxically skeptics work to benefit all the people equally, yet have few collective backers. Even the large fossil fuel companies have put more money into renewables, or carbon trading, than skepticism.

This review of a book on Keynes is worth reading. My favourite snippets from a fascinating struggle:

The Addled Theories of John Maynard Keynes
by George C. Leef, Reviews Hunter Lewis‘s book

Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts
by Hunter Lewis (Axios Press, 2010); 384 pages.

Instead of being laughed at and ignored, Keynes became a giant, however. That seeming oddity is explained by the fact that his ideas were enormously appealing to statist politicians and academics. They gave intellectual respectability to a vast increase in government power. Ordinary people are harmed by that because expanding government inevitably means decreasing freedom and decreasing economic efficiency, but scarcely any of them understands how they are hurt by Keynesian voodoo. After reading Lewis, it’s impossible to disagree with Murray Rothbard’s judgment that Keynes was “a charming but power-driven statist Machiavelli, who embodied some of the most malevolent trends of the 20th century.”

At the outset, Lewis observes that Keynes wasn’t really an economist at all, but was “the first of a breed that we have come to know well: the government policy entrepreneur. He lived and breathed policy, loved being consulted, pursued and even lionized by the political and business elite.” The policy that Keynes pushed was the antithesis of laissez faire. Rather than leaving the economy to the “invisible hand” — which is to say, to millions of individual decisions and transactions — Keynes wanted experts such as himself to control “the commanding heights” and make the choices that would shape the general contours of the economy.

The Austrian theory stood in direct opposition to his own explanation, but Keynes never engaged it. As Lewis shows, Keynes was good at using satire and misrepresentation to make himself seem far smarter than “old fashioned” economists, but he never bothered trying to refute the Mises/Hayek explanation for the business cycle.


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Keynes may not have had it right on economics, but he was a smart man:

“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 influences, are usually slaves of some defunct economist.”
John Maynard Keynes
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By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

John Maynard Keynes

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