Keynes vs Hayek

[Gary Childress]

I happened across a couple of nifty little videos on Keynes vs. Hayek. Catchy rap tunes, they got me thinking a bit more about the debate between "free market" economists and their philosophical/economic opposites.


Link to video.


Link to video.

I'm admittedly not well versed in economic theory. I studied it a little in college, just enough of it to learn that most economists admittedly don't truly understand how the economy works either. But I have to admit that Keynes' approach to things seems more reasonable to me, at first glance, than Hayek's. Perhaps it's just a prejudice of mine but "free market" economists seem almost cult-like, ivory tower theorists with a strange misplaced faith in some "invisible hand".

Conversely Keynes seems like a practical person, the economy was broken in 1929 and something, however imperfect, needed to be done. Perhaps there is a flaw in Keynes that his practices have been too easily manipulated to preserve the interests of the few but I give the man some credit for rolling up his sleeves and trying to solve the problem through the practical application of economic ideas. I sort of see Hayek as too timid and devoted to an idyllic, picturesque notion of economics to take real meaningful action. After all what is Hayek's solution to economic downturns, to ride it out and wait for the market to "correct itself"? This seems almost passive and apathetic. It's like a scientist devotes his life to studying a virus and after awhile begins to admire the object of his study, it's simplicity and elegance in design. Suddenly he finds himself caught up in more appreciation for it than for the imperfections of people and society around him. "Free market" economics seems unrealistic to me, putting faith in "invisible hands" or otherwise distrusting our own abilities to take action and alter nature around us. Yes, Keynesian economics has its pitfalls, it's all too easy for fiscal policy to be manipulated to serve the economic interests of the few, but I wonder if the solution isn't to seek to fight this manipulation, wrestle control away from them and to the ordinary people, not sit in an ivory tower and fantasize over economic purism.

Anyway, I'm no expert. I know there are many admirers of Hayek out there and I've probably offended the sensibilities of more than a few of them. So my question to the economic experts and to Hayek's admirers, what should be so appealing in Laissez-faire economics? As human beings we are capable of taking action to try to correct economic disasters. Sitting back and waiting for the market to "correct itself" seems unrealistic. I can understand the opposition to "crony" capitalism that "free market" economists often profess to possess but it seems like a dissociative and vain way to protest it. If you really want to protest cronyism, why not seek to put more power in the hands of ordinary people, advocate economic interventionism aimed toward the interests of the common person? Otherwise what practical purpose does seeking to take away human ability to intervene in the workings of nature accomplish? It almost seems like walking away and giving up.

 

[sophie]

http://forums.civfanatics.com/showthread.php?t=351358

 

[Gary Childress]

http://forums.civfanatics.com/showthread.php?t=351358

I suspected I was probably not the first to discover the video. Just using it to kick off a little debate on the topic.

 

[Berzerker]

either you believe the market operates best with the unimpeded feedback between producer and consumer or you think you're smarter than everyone combined

 

[Ajidica]

Unfortunately, there is a problem in that there is no market where there is unimpeded feedback between the producer and consumer (or any sort of 'ideal market'). Therefore, if we want to approach that ideal equilibrium we need to implement policies that drive it artificially toward said equilibrium.

 

[Evie]

either you believe the market operates best with the unimpeded feedback between producer and consumer or you think you're smarter than everyone combined

Considering that "everyone combined" is basically mob mentality, and that mob mentality tend toward the lowest common denominator, the vast majority of human beings are smarter than everyone combined.

The more people you get together, the dumber they get. Not the other way around.

 

[Gary Childress]

either you believe the market operates best with the unimpeded feedback between producer and consumer or you think you're smarter than everyone combined

The Keynesian approach doesn't seem to me so much about interfering at the micro level with the interaction between producers and consumers as much as reacting at the macro level to fix the market when it tanks and keeping the system going so consumers and producers can do their thing. Consumers and producers constantly interact and give each other feedback even in when the Keynesians are at work I don't see how a hands on approach to the market profoundly interferes much with that relationship on a personal level. It just seems to me that "hands on" is a more sensible approach than deifying impersonal market forces and refusing to take action when those unchecked and unruly impersonal forces start turning things in directions we humans would rather not go in. Over time hopefully our understanding of market processes and how to successfully manipulate them in ways that produce desired results continues to improve.

To accuse Keynesian economists of thinking they're smarter than everyone combined seems like a cheap shot. It's not that they are smarter than everyone else. It's that markets are NOT people. They are not even run by people. Interfering with them doesn't dispose one to presuming that they are somehow smarter than all the players in a market. Only that when the forces of the market get out of control of even their participants something needs to be done. I feel more comfortable when human design rules and not the abstract and impersonal desires of markets.

 

[El_Machinae]

There's a podcast done by one of the people involved in that video. Russ Roberts hosts Econtalk. And, it's really, really good. Roberts is unabashedly Hayekian, but he's extremely cognizant of about 99% of his biases, and it really, really helps his interviews. I've gotten a great deal out of them.

The problem with the Hayekian system is that it assumes ignorance. You can be infinitely ignorant and still suscribe to Hayek. But, this just isn't true. To assume that economics is such a Black Box is ... well ... it's fundamentally incorrect. I vastly prefer the work that's been built onto Keynes's original work. He was very clearly not 100% correct: neither was Darwin or Newton. But, he had enough of a good idea that the next good idea could be built on top of it.

 

[Mechanicalsalvation]

Hayek wins!!! Obviously there is something really wrong with the world economy.....

 

[GoodSarmatian]

Obviously there is something really wrong with the world economy.....

And how does that bring you to the conclusion that Hayek wins ?

 

[Hygro]

either you believe the market operates best with the unimpeded feedback between producer and consumer or you think you're smarter than everyone combined

Ah, so you're a Keynesian.

 

[Berzerker]

Unfortunately, there is a problem in that there is no market where there is unimpeded feedback between the producer and consumer (or any sort of 'ideal market'). Therefore, if we want to approach that ideal equilibrium we need to implement policies that drive it artificially toward said equilibrium.

What ideal equilibrium? The people making those policies are claiming a greater intelligence than everyone operating in the market. I dont see how they can be smarter than the "invisible hand".

Considering that "everyone combined" is basically mob mentality, and that mob mentality tend toward the lowest common denominator, the vast majority of human beings are smarter than everyone combined.

The more people you get together, the dumber they get. Not the other way around.

How does a politician know better than you what you need? Aint no mob following me around the store.

The Keynesian approach doesn't seem to me so much about interfering at the micro level with the interaction between producers and consumers as much as reacting at the macro level to fix the market when it tanks and keeping the system going so consumers and producers can do their thing. Consumers and producers constantly interact and give each other feedback even in when the Keynesians are at work I don't see how a hands on approach to the market profoundly interferes much with that relationship on a personal level. It just seems to me that "hands on" is a more sensible approach than deifying impersonal market forces and refusing to take action when those unchecked and unruly impersonal forces start turning things in directions we humans would rather not go in. Over time hopefully our understanding of market processes and how to successfully manipulate them in ways that produce desired results continues to improve.

To accuse Keynesian economists of thinking they're smarter than everyone combined seems like a cheap shot. It's not that they are smarter than everyone else. It's that markets are NOT people. They are not even run by people. Interfering with them doesn't dispose one to presuming that they are somehow smarter than all the players in a market. Only that when the forces of the market get out of control of even their participants something needs to be done. I feel more comfortable when human design rules and not the abstract and impersonal desires of markets.

Markets are people and very personal, we make billions of decisions a day that create the feedback between producers and consumers and Keynesians think they can make better decisions for us. You can call it a cheap shot but thats just the reality, their arrogance is offensive.

 

[Mechanicalsalvation]

And how does that bring you to the conclusion that Hayek wins ?

I love to argue about things which are known to me from only recently watching couple of youtube videos. Here is another one:
Link to video.

 

[Tahuti]

Ah, so you're a Keynesian.

'There was one good thing about Marx: He wasn't a Keynesian!'

~Murray Rothbard

 

[Ajidica]

What ideal equilibrium? The people making those policies are claiming a greater intelligence than everyone operating in the market. I dont see how they can be smarter than the "invisible hand".

To choose an easy example about markets needing intervention to reach an ideal equilibrium, lets look at pollution.
Suppose a factory creates pollution to make a product. They have to dispose of this pollution somehow, and suppose in this example it gets pumped into the air. Now, the factory is not paying to dispose its pollutants in the air so there is no cost. However, in an ideal state the factory would only dispose of the pollutants in the air as long as their marginal benefit of doing is cheaper than the cost of doing so.
That said, without intervention there is no mechanism by which the factory can 'pay' the air for the right to dispose pollutants in it. Intervention is needed to 'create' a marginal cost curve for the company and approach the ideal equilibrium which in the real world was nowhere to be seen.

Without intervention imposing a marginal cost, the company has no incentive to be anywhere near the ideal equilibrium and all the incentives to keep pumping pollution into the air without paying the disposal costs one would expect in a functioning market.

 

[Cutlass]

'There was one good thing about Marx: He wasn't a Keynesian!'

~Murray Rothbard

Quote by a man who's the patron saint of those who reject understanding economics.

 

[Evie]

How does a politician know better than you what you need? Aint no mob following me around the store.

With billions of people out there, what you individually buy in the store is absolutely irrelevant.

Economics are dictated by the actions of large masses of people (or people with very large masses of money), not single individual acting alone with non-spectacular amounts of money. Your actions, unless they're part of the actions of a larger group (in which case, some amount of mob mentality via advertising, scare campaigns, etc has certainly come into play) or influence others to buy the same thigns you do (in which case you're starting the mob mentality) are irrelevant.

A politician may not know better than e what I need in my individual life (or they may). But just about any individual, politician included (unless he's kow-towing to the whims of the majority), will have a better informed, more thought-out opinion than public opinion as a whole. And it's public opinion as a whole that affect the economy.

 

[El_Machinae]

How does a politician know better than you what you need? Aint no mob following me around the store.

How is this Keynes vs. Hayek?

 

[Gary Childress]

What ideal equilibrium? The people making those policies are claiming a greater intelligence than everyone operating in the market. I dont see how they can be smarter than the "invisible hand".



How does a politician know better than you what you need? Aint no mob following me around the store.



Markets are people and very personal, we make billions of decisions a day that create the feedback between producers and consumers and Keynesians think they can make better decisions for us. You can call it a cheap shot but thats just the reality, their arrogance is offensive.

Markets are not people, they are composed of people and these conglomerations of individuals don't always behave in the same intentional manner as an individual human does. Also people are not necessarily acting "feely" in a market. They are often being compelled to act in specific ways or make specific choices by what amount to impersonal market forces. I don't see how Keynesians are any more "arrogant" or think they're any smarter than everyone anymore than any of the self proclaimed "free market" geniuses out there. Basically they are just trying to apply whatever understanding is available about economics to try to keep the impersonal forces of the market under some modicum of rational direction. Keynesian economists are not telling you what to do or buy. I'm sure you make those decisions on your own.

I don't get what the point of the "free market" crowd is. Are economists just supposed to sit there, look pretty and collect Nobel prizes or something? What good are they if they aren't applying their knowledge to actively affect the world around them in humanly positive ways? Are they just supposed to advise investors on which stocks look like good buys and which don't? I mean, I just don't get the whole "hands off" attitude. If all the sciences took the same approach to knowledge and action then we'd still be living in caves.

 

[Tarquelne]

Markets are not people, they are composed of people and these conglomerations of individuals don't always behave in the same intentional manner as an individual human does.

Yes: "Behavioral economics."

(On second thought: No. "Behavioral economics.". Even individuals don't always behave in an "intentional" manner.)

Also people are not necessarily acting "feely" in a market.

My boss says we are.

I don't see how Keynesians are any more "arrogant" or think they're any smarter than everyone anymore than any of the self proclaimed "free market" geniuses out there.

The Keynsians are telling us we're not smart enough to be perfect.
That's "arrogant". (Note the quotes.)

The free market guys tell us we're plenty smart enough.
Anyone telling me I'm that smart must be a genius.

Keynesian economists are not telling you what to do or buy. I'm sure you make those decisions on your own.

But following their ideas through to their logical extreme, Keynesian economists would make it difficult to make self-harmful decisions on my own. That limits my freedom.

I don't get what the point of the "free market" crowd is.

1) "You were right all along."
2) "You don't have to pay any more in taxes."
3) "You don't have to help anyone. What ever is wrong with them, they deserve it."
4) "You're a genius."

Are economists just supposed to sit there, look pretty and collect Nobel prizes or something?

Did you know that Fox News is contemplating a bid to buy-out the Nobel organization?

What good are they if they aren't applying their knowledge to actively affect the world around them in humanly positive ways?

Sometimes doing nothing is the best "action" to take.

That's the radical idea. "Sometimes."
For the free-market hardcore doing nothing is *always* the best action to take.

This is because they were origionally hardcore Taoists.

Wu wei is an important concept in Taoism that literally means non-action or non-doing. ... Laozi explains that beings (or phenomena) that are wholly in harmony with the Tao behave in a completely natural, uncontrived way. The goal of spiritual practice ... is ... the attainment of this purely natural way of behaving, as when the planets revolve around the sun. The planets effortlessly do this revolving without any sort of control, force, or attempt to revolve themselves, instead engaging in effortless and spontaneous movement.

Thus, the Tea Party's emphasis on the free-market. (Tea = China!!!)

EDIT: I don't think free-market economic theories are intrinsically linked to certain political views. But I think it is very much the way things happened to work out. IMO the only reason that branch of neo-classical economics has hung around so long, and with such an emphasis on a sort of "purity", is it serves a political purpose.


BTW: I thought those videos wonderfully done.
They're awesome.

OTOH, I found myself thinking "Yes, but...!" fairly often. And - though at this point I've forgotten the details, so I can't back this up - when they were released I came to the conclusion they didn't really reflect Hayek's views. Close ... but less presenting Hayek's views than trying to use Hayek to score points off Keynesianism.