Friday, September 21, 2012

Keynes versus Hayek

I recently listened to an interesting Planet Money podcast titled Obama, Ryan And Two Dead Economists. You can listen to the podcast at this link. The two "Dead Economists" are John Maynard Keynes and Friedrich Hayek. The podcast includes an interview with Nicholas Wapshott, author of Keynes Hayek: The Clash That Defined Modern Economics. The difference between the two is briefly summarized in the book description which states the following:

John Maynard Keynes, the mercurial Cambridge economist, believed that government had a duty to spend when others would not. He met his opposite in a little-known Austrian economics professor, Friedrich Hayek, who considered attempts to intervene both pointless and potentially dangerous.

One interesting topic explored by the podcast is how some of Hayek's ideas are contrary to what Paul Ryan and other Republicans are pushing for. A Planet Money blog about the podcast states the following:

In our conversation, Wapshott cited to two places where Hayek and Republicans disagree:

1. Taxes

Cutting taxes before you have money to do is very Keynesian ... not Hayekian. Hayek specifically said unless the government is in surplus, you shouldn't cut taxes, because that would only increase the debt.

2. Universal Health Care

Hayek also said a country should have:

A generous welfare system, a safety net for people who fall through the cracks, everyone should be provided with home, universal healthcare. This seems to be skipped over by all the people who call themselves Hayekians.

An Ezra Klein column expands on this latter point, attributing the following statement to Hayek:

There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision.

The column sources Hayek's well-known book The Road to Serfdom. However, it's worth reading the actual page to get the full context since the statement above seems to leave out a few lines.

In any event, I found the podcast very interesting and a good introduction to some of the subtleties in the theories of Keynes and Hayek. I highly recommend it.

About Me

I became interested in U.S. budget and economic matters back in 1992, the first time that I remember the debt becoming a major issue in a presidential election. Along with this blog, I have a website on the subject at I have blogged further about my motivations for creating this blog and website at this link. Recently, I've been working on replicating studies such as the analysis at this link.

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