Saturday, November 19, 2011

Keynes vs. Hayek Rap, Round Two

theObserver asks: are they being fair to Keynes (and Hayek)? Hard to say. Both videos together form a summary, brief to the point of oversimplification, of the views of two brilliant economists.

Nils Bohr said, "The opposite of a correct statement is a false statement. But the opposite of a profound truth may well be another profound truth." To a certain extent, both Keynes and Hayek are correct. I agree (to a certain extent) with Hayek: I don't think it makes sense to try to micromanage a macroeconomy. On the other hand, Keynes is also correct: there are things the government can and must do. I think Keynes is more correct, though, and the government boosting aggregate demand in a depression is hardly micromanaging the whole economy.

There are a lot of positive feedback loops (in the engineering sense) in an economy. Without positive feedback loops, we wouldn't have long-run economic growth. But positive feedback loops have the potential to be destructive as well as productive, as in the notorious "death spiral," where a business lays off salespeople to cut costs, reducing revenue, and requiring another round of cost-cutting. One role of the government is ameliorate positive feedback loops that are resistant to private, individual control.

Note that communism is not synonymous with absolute central planning. Communism is social ownership of the means of production. They're related concepts; the most obvious way to implement social ownership is by government central planning. But the most obvious way is not the only way, and in this case is not, I think, the correct way.

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