(See, it’s funny because you need two hands to say “but on the other hand”…fine, never mind…)
Last week I wrote a bit about John Maynard Keynes, which I felt was only appropriate given that Obama is, well, a Kenyan. (Wait, that’s not right…) I was careful to point out that not all economists agree that Keynes was correct in his conclusion that fiscal and monetary policies are effective in smoothing out economic ups and downs, so I guess I should give another side to the story.
Enter F.A. Hayek:
Friedrich August Hayek CH (8 May 1899 – 23 March 1992), born Friedrich August von Hayek, was an Austrian-born economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought. He is considered to be one of the most important economists and political philosophers of the twentieth century. Hayek’s account of how changing prices communicate signals which enable individuals to coordinate their plans is widely regarded as an important achievement in economics. Hayek also produced significant work in the fields of systems thinking, jurisprudence, neuroscience and the history of ideas.
In contrast to Keynes, Hayek disapproved of the use of monetary policy to mitigate business cycles. He instead felt that artificially low interest rates led to misallocation of capital and didn’t believe that a central bank would be able to have the relevant information and intelligence to govern the money supply correctly, even if such a thing were theoretically possible. Like Keynes, however, Hayek was no slouch- he won the Nobel Prize (or whatever you sticklers want to call it) in 1974, received the U.S. Presidential Medal of Freedom in 1991, and was one of the founders of the Austrian School of Economics.
Wait- the what now? I’m the first to admit (even as recently as last week) that I may not have paid as much attention as I could have in my macroeconomics classes, but I’m reasonably confident that the Austrian School was never mentioned, at least not by name. (In retrospect, I’m pretty sure I am right in this particular case.) As such, I was left in the lurch a bit when I first began posting stuff on the interwebs, since “what’s your view on the Austrian school?” was a shockingly common question. I quickly learned that my ignorance was largely due to the fact that the Austrian School is outside of mainstream academic economics and is typically associated (fairly or not) with, um, what I have in the past lovingly referred to as libertarian wackjobs. (It’s probably in a sense counterproductive, for example, that Glenn Beck pushed Hayek’s The Road to Serfdom to the top of the Amazon best seller list for a while.)
That said, the argument in my earlier Keynes discussion still holds: the jury is still out to some degree due to lack of empirical evidence, and just because a group is in the minority doesn’t mean that it’s wrong. (Personally, my beef with the Austrian School stems from its rejection of empirical methods and a seemingly unwavering support of laissez-faire ideals- as a researcher, I find it difficult to believe that objective research and thought never lead to conclusions that are at odds with one’s personal values, so I find the “free markets are always best” party line to be a tad suspect. Interestingly, this line is also not entirely consistent with the work of Hayek himself.)
Last year, economist Russ Roberts and non-economist film and TV guy John Papola created a video about the Keynes/Hayek debate that you may have seen:
After reading this article and seeing that video, it probably won’t surprise you to learn that Russ Roberts is a professor at George Mason University, which is one of the main academic organizations that claims a concentration of Austrian School thinkers. Turns out Russ and John are planning a follow up, and a preview and some discussion is given here:
What I find most interesting here is that yeah, they’re biased, but at least they acknowledge that Keynes exists, so I figure that’s at least a step towards a clearer picture of the overall macroeconomics landscape. 🙂