Keynes' ideas have become the dogma in recent years, but do you believe the pendulum will swing back towards Hayek's free markets and limited government in the foreseeable future? Has society become too reliant on government support to ever allow free markets to work again? Which Economist has the better argument about the role of Government in the economy?
Where do you stand on the issue? What are the best reasons to support your side? Identify the main flaws in the opposing argument.
Check out the articles below as you develop your arguments.
http://welkerswikinomics.com/blog/2011/10/31/keynes-versus-hayek-101-the-debate-continues/
http://www.soundmoneyproject.org/?p=2085
http://www.reuters.com/subjects/keynes-hayek - Watch the actual Debate!
And for those who appreciate Audio and Visual Awesomeness...
Keynes vs. Hayek: Fear the Boom and Bust
Keynes vs. Hayek: Round 2... Fight of the Century
52 comments:
Although I am not entirely sure who I fully support, I am leaning more towards the side of Keynes. His core belief was that “one person’s spending goes towards another person’s earnings.” If the public saves too much, there is less money in circulation for all. This “multiplier effect” is a key component in macroeconomics and has been proven true numerous times. Keynes theory was proven effective during the Great Depression, for the majority of society began to hoard their money. Therefore, less money was in circulation, and the situation only worsened. However, when the government intervened, and FDR increased defense spending, an economic revival came to fruition. Hayek’s belief in a laissez-faire economy is not practical, for there is no guarantee that the economy will turn around in a timely fashion. It is not right to do nothing and let people suffer more for months or even years when an intervention could occur. Also, if nothing is done, conditions may get so dire that it may hinder many from making a full economic recovery.
Arianna D
Although Keynes' economics does increase the national debt, I still lean toward supporting Keynes, especially since the debt is not going to be fixed anytime soon no matter what the government does. I believe that fixing unemployment comes before lowering the national debt, especially during a recession. If the recession is devastating enough, the general public would most likely look toward government to take action and assist in recovery rather than sit passively while doing nothing or ignore the depression and people's needs and concentrate on dwindling the national debt. In the worst case scenario, the public could rebel against the government, whom they deem as ineffective and corrupt. The free market would not do so well to fix the problem in the immediate future if the public does not cooperate. Also, government social programs are needed. For example, laws on working conditions matter highly and save lives as compared to when there were almost no laws on the matter and children died with abnormally low wages. Money is not the thing we should value the most. We should value the welfare of others, as well. The main flaw I find in Hayek's model is that assuming the AS curve is vertical, how long would it take for the market to right itself? Would it take a few years or a few decades? Especially during severe recessions, I do not think we can spend decades for the market to right itself. People may lose faith all together in the market. Also, is excessive spending in the previous cycle always the cause of a recession? Furthermore, if we adopt Hayek's model, are we going to cast aside the lower end of the spectrum just because of Darwinism? Once again, we should not be cruel and help those in need. We are human, not animal.
Ricki L. Period 6
I defend Keynesian economics because fiscal and monetary policies enacted by the government and central bank could provide stimulus to fight unemployment, and increase aggregate demand. Regulations in the private sector including minimum wages, workplace safety laws, government pensions, unemployment benefits, anti-trust laws, and welfare payments, provide stimulus spending and protections for the public. While the pressures on politicians to seek short term solutions to save political careers plagues economic policies, it is important to seek long term economic stability. Hayek's theory of a "hands off" policy, specifically during economic downturns, will leave individuals helpless and unconfident in making expenditures and trusting the government.
Matt A.
I believe that the economy will keep running through Keynes’ ideas in the future. I do think that society has become too reliant on government support but I also believe that it is necessary for the economy to run properly. I think that Keynes theory has the better argument about the role of government in the economy. I stand by the Keynes viewpoint because I think that government intervention will only help the economy by looking at their current problems and deciding how they can be fixed. The pros of Keynes economics are the immediate actions that the government can take during times of recessions for example increasing their spending or decreasing taxes. This action can help decrease high levels of unemployment. The increases in spending can go towards education and infrastructure, thus helping the country’s well being. The flaws of Hayek’s theory can be that in the long run, not a lot of people will care what will happen because many people want their current problems fixed now. During recessions consumer confidence is very low and Hayek believes that letting the market handle itself will be the proper choice. The problem here is that many people will suffer from unemployment because there will be no government to help them get out of the recession. I believe that a Keynes viewpoint is necessary in order for an economy to prosper.
Gabriel G.
Although some of Keynes ideas were applied far too broadly during the 50's and 60's, creating an almost entirely command economy, I do believe that ultimately the ideas of Keynes are correct, so long as we do not do as some in the past did and almost entirely remove the free market from the equation.
It is entirely possible that Hayek's ideas could become the more popular ideal again. It has worked in the past in the fight against inflation (hence why I think that ultimately a combination of the ideas of both, like in Germany, is best). Society has become used to a welfare state, though within the US not nearly enough to forever remove the free market from the equation.
Government involvement in the economy should be to remove unfair advantages and, in times of trouble, to act as the consumer (stimulus spending, etc.). In this, Keynes is correct, and Hayek too idealistic. An entirely Laissze-Faire system does not work.
Emma B.
I think that Hayek has the correct view of how the economy should work. It makes more sense to leave the economy alone rather than try to fix it with government policies because the economy is a force of nature, not a machine that can be tampered with and fixed. There are too many factors involved to fix the economy by simply increasing government spending and cutting taxes. The multiplier does not always work and is not always reliable like it should be in theory which is a flaw in Keynesian economics. Another major flaw in Keynesian economics is that the increase in government spending causes the boom to be greater than it should be which leads to a bust that is worse than it should be. If societies followed Hayek's ideas, then there would not be these extreme booms and busts that are wreaking havoc on economies. Hopefully, more governments will try to cut back on their stimulus packages. In the United States, Obama has been using Keynesian policies to fix the economy since he has been elected, but there are still many problems that have not been fully fixed. As a result, I think that the next president will decrease government intervention and adopt a policy that follows Hayek’s theories. I think that once the government stops involving itself in the economy, things will start to get better and it will become more acceptable for the government to not intervene. Overall, only time will tell if Hayek’s ideas will beat Keynes’ ideas and become more prevalent in the future.
I believe that most of the time, Hayek has the better philosophy. The less the government is involved with something, the better it usually is. Of course, there are exceptions, such as major recessions, when government spending is a good thing. When the government spends enormous amount of money, as it does today, without the taxes to back them up, we just run more of a deficit and ultimately this will lead to problems for the United States. However, given that Keynes' economic ideals have become accepted as right, it would be nearly impossible to lower government spending by any significant amount.
I believe that the ideas of Keynes will remain the more dominant and accepted theory, but I also believe that the ideas of Hayek will gain more and more momentum in the future. Here in the U.S., I do feel as if the people have become dependent on the government when it comes to dealing with the current state of the economy. In my opinion, Keynes has the better argument about government intervention, and I believe that one of the reasons is actually a weakness of Hayek. This weakness is that if people were to run the economy themselves, who was going to be in charge of price level, because most people could then price gouge. Also, If a recession occurred, how long would it take to repair the damage? Months?Years?
With this issue, I stand along side Keynes because his ideas are more of a safer way to run an economy. This includes a shorter time to get out of economic downturns and dealing with inflation and unemployment. Also, Keynes has history on his side, being that he was the economic juggernaut during the 20th century. I believe that the main flaw in Hayek's system is that there are so many variables to discuss that most followers of Hayek can't agree with each other, so a full system would have to be agreed upon by everybody.
Steven G.
In the near future, I cannot see people abandoning Keynesian ideas and becoming Hayek supporters. This is because we have just ended our recession and growth is about to begin. When we are growing, Keynesian policies seem great because we spend on deficit and experience massive growth. However, this growth is somewhat imaginary because much of the growth is made from bubbles and mal-investments that will eventually come back with a vengeance. That is not to say Hayek is right. I believe government should have a role in reasonably regulating companies and being in charge of some programs like research, food/drug safety, security, etc. But, a lot of the money government spends is wasteful pulling us deeper in our deficit which most people choose to ignore. Overall I can’t say I support either of them but, I guess I’m leaning towards Hayek because he seems to focus on the long run and Keynes seems to focus on the short run. That’s not to say however that I want small government. I just think that the government should focus its energy more on the future and not on how the economy is doing at the moment.
Jessica D
I think that we will not see a change toward Hayek’s views anytime soon. Right now our economy is so heavily controlled by the government that it would take a while for them to take away that control. Much of our society relies on the government to a point where it is too much. Our government supports people excessively that a more free market would be too much for people. Hopefully in the future our society will get back on their own feet and not need that much government support and can go back to a more free economy. It’s important to find the right balance and as of right now we are too government focused.
I tend to lean towards Keynes view of having the government oversee matters. The government can keep the economy in balance and make sure that it doesn’t go into a deep recession or too much of a high that would eventually cause a recession. With a free economy there is a higher chance of gaps between incomes control of on income class. Having government oversee means a more balanced economy without such extremes. However, to much of anything is never good either. Having the government too much involved make people to dependent on them which can hurt the economy.
Rawann Elhalawani
I believe that once something like the gov't has gained power in a branch of society such as economics its very difficult for them to give some power back. That's why I think its going to be very hard for the pendulum of Hayek to "swing back" into full force. It would have to take many people on board with the idea of less gov't regulation within the gov't itself. I believe that both have very good arguments about whats the gov't role in the economy I believe Keynes ideas are more stronger because he believes " the government and central bank could provide stimulus to a depressed economy and create demand for the nation’s resources that would help move a depressed economy back towards full employment." The gov't is put in place for a country to protect them in times of disasters natural or man made, that's why the gov't needs to regulate what goes on in the economy because with out that jumpstart the economy can take several years to rebound and people don't like to wait, they don't like to suffer. That's why I believe that although hayek has some great ideas, Keynes has the stronger argument when it comes to where the gov't should be in terms of the economy because if it weren't for that regulation then big businesses would be abusing the average consumer and average worker, that's why we need the gov't to be the extra pairs of eyes and to help and ensure that everybody is being treated fairly but at the same time people are making a living.
Grace Zhao
I agree more with Keynesian economics. I think that Keynes is correct in asserting that savings become idle money and depress economic activity. They are considered a leakage in the circular flow model, so government spending is necessary to offset the spending deficiency. I do not think that enough savings are invested to make Hayek’s argument that savings flows into securities and contributes significantly to investment. The major flaw in Hayek’s model is that it claims that recessions are impossible in the absence of government intervention, but this is evidently untrue. In the last several years, economic output has declined in many Western nations, and wages and prices have not fallen as much as Hayek would predict. I find that the best argument for the Keynesian model is an ethical one: a private market without minimum wages and laws protecting workers would not contribute to an acceptable standard of living for most citizens. I also think that we cannot rely on self-correcting forces during economic recessions and depressions because the economy will take time to correct. Government intervention is necessary to prevent a long period of economic downturn.
I personally believe in keynes economics. Even though it would be ideal for the government to not intervene in the economy it is necessary to a point. The economy could function under either hayaks or keynes economics theories but i believe keynes theory is more effective and beneficial for the economy. i think this because under hayak yes the economy will eventually figure itself out, it will take to long for the economy to achieve this on its own and would do further damage to the economy. so therefore thats why government intervention is necessary and keynes theory is more effective. By the government intervening when it needs to avoids the economy from going off track and if there was a depression or hyperinflation with government help and intervention it fixes the economy faster and prevents further damage than if the economy tried to fix itself. So not only is keynes theory more effective it is almost necessary in a sense for the good of the economy.
Nick H.
In the future, I don’t believe that the economy will swing back towards Hayek’s free market and limited government ideas. The public isn’t as patient as it used to be. People who support Hayek’s ideas will never be elected because the public is always looking for quick fixes and Hayek’s plan could take years and maybe even decades. The last thing that the public wants to do is waste time on an economic plan that can be avoided through government reliance. Society has become so reliant on government support that free markets will most likely never work again. I believe that Keynes has the better argument about the role of government in the economy. The government should regulate the economy and help it when it seems like it needs to be directed a certain way. Without support from the government there is no telling what could happen to the economy, it could take years or even decades for the economy to bounce back from a depression or recession if there is no support from the government. I believe that there should be government support because that is the only way to appease the public. With the government helping the economy it shows that the government is working and at least attempting to fix a problem. Hayek’s ideas could have worked in the past but at this time, without government support the economy may not be able to recover as quickly as it has with support. The truth is you never know what will happen with the economy but I believe as of right now the safest plan is to allow the government to help direct the economy.
Kathleen H.
This is fascinating. In class, I was leaning towards Hayek’s ideals, but reading Jason Welker’s article has sent me leaning the other way again. This makes me question my perspective-am I seeing the politics behind both arguments and subconsciously leaning towards the opinion of the party I support? is the tone/opinions of the writer (or the video’s creator) throwing me off? Food for thought.
In his take on Hayek’s philosophy, Welker suggests that “the free market would take care of health care, education, defense, security, infrastructure....” But would it? If we’d removed government from the equation decades ago, would the United States still be a country with a history of, for example, political and military strength? Listening to the cry of the masses (in essence, “demand”) isn’t always the best idea-that’s the general reason why the founders of the country cringed at the thought of a full-on democracy. A country needs some government (and at this point, the discussion always gets political, & all arguments become hopelessly divided along major party lines-but stay with me, here). For example, although it’s been widely debated and Hayek argues that it would have been resolved either way, the Great Depression was sort of kind of improved by FDR’s attempts to create regulations (obviously there were some issues-but it does generally seem as though Keynes’ philosophy worked and Hayek’s did not, even though, yes, it is only one data point). Classical economists would suggest that the economy would have adjusted in the long run, which, given the fact that WWII would have boosted the economy either way, is probably true; but as Mr. Karmin said in class, allowing the economy to adjust by itself is unpredictable. What if it takes five years, fifteen years to adjust? can a nation wait so long?
In his article, Welker also suggests that, “At any and all times, government’s best action would be to lower taxes...Any regulation of the private sector...would reduce incentives for individuals in society to achieve their full productivity.”
But we can agree that the trickle-down theory doesn’t work-so does solely cutting taxes really help the society as a whole?
I suppose I have to define my argument and figure out what I’m trying to say-is this debate over what is best for the economy, or what is best for the country? If it’s the latter, the government should create minimum wage laws, which give some basis for the ignorant citizen who isn’t closely monitoring the economy; and the government *has* to provide workplace safety laws! Go back to the Industrial Revolution, or the Triangle Shirtwaist Factory Fire of the early 1900's - factories presented employees with terrible workplace conditions, and the government had to get involved in order to improve the conditions (and no, I’m not saying that having the government step in fixes all problems-a company can still squeak by, ignore the rules, maintain its terrible conditions-but with regulations, at least there’s a better chance of seeing improvements! And yes, I know I’m bringing social issues into a debate over the economy ... but doesn’t it all turn into one great big knot somewhere down the line? if we only do what’s best for the economy and purely follow Darwin’s laws of natural selection, do we not end up with unrest and discontent and perhaps even revolts?)
*However*, in the video, Keynes suggests “in the long run, we’re all dead,” which isn’t necessarily sensible-as we’ve learned in class, the long run and short run are very different, and not considering this just sounds, well, foolish. Also, Hayek makes a good point about war - all people are employed, but few consumer goods are being produced; and economic growth depends on the production of goods.
I don’t know ... I like Hayek’s ideals, but Keynes’ philosophy seems to get better results? It’s almost like talking about Communism-it’s nice to think about a world where no one’s being stepped on by the wealthy and the powerful, but in practice, it simply hasn’t worked.
Keilah Bruce-Tagoe
The US government has learned to be a crutch even when America was not crippled. Yes, product development, technological advancements, and social order have all been great outcomes to a Keynsian viewpoint, but at what cost. Keynsian supporters might also support the idea of eye glasses because they NEVER actually heal the problem, only constantly updating the newest prescription for an unstable and blind economy. However, Hayek supporters might support the idea of eye surgery since the entire problem would be uprooted from its source and hopefully never encountered again. Although extreme, Hayek's beliefs teach a lesson that every problem can be fixed.
I understand Keynsian viewpoints because it's much easier and cheaper to consistently momentarily fix the problem. On the contrary, I support, wholeheartedly, Hayek because it allows the "big picture" to be seen. We can not just live for the now, just like we can not just live for the future. Hayek's idea could result in years of recessions and unemployment but at least, in the end of it all, the nation has learned to be dependent of itself and see everything they might have missed before.
I agree with Hayek's position on the role of government in the economy. I believe that the private sector can correct itself more quickly and efficiently without any government intervention. A free market can move resources around on its own to produce and meet consumer demands. In a keynesian economy, government intervention would limit any incentives for individuals to reach their own potentials in the market any everyone would rely to heavily on the government.
Christian R. per.7
In the great battle of Keynes vs. Hayek I believe it is Keynes who rules the day. Although the followers of Hayek argue that there are very few data points to support Keynesian Economics those points have been major economic points that have had global impacts. The first point on the Great Depression was arguably the greatest economic disaster in history and had no foreseeable end in sight. It was only after FDR and his New Deal involving government intervention into the economy that it began a rebounding period punctuated by growth due to WW2. Without this government intervention the free markets may have taken decades to correct and may have left the United States in a weakened state going into the Second World War. The next major point is the recession of 2008 and its effects on the global markets. This recession following the collapse of the housing market left the United States in a weakened economic state. However, following government intervention such as quantitative easing the economy has begun a period of recovery and some claim that we are out of "the thick of it" and may have actually returned to pre-recession levels. However without the use of Keynesian economics on the economies of the 1930s and 2008 the economic downturns may have continued for decades before recovering and as a result have left people suffering for longer periods of time when they could have and were spared by government action that led to faster recovery.
Rebecca C.
After years of following Keynesian economics, I believe that society will require a revolutionary failure in government intervention—such as a depression of similar magnitude to that of the 1930s, with government intervention drastically worsening the situation—for the economy to ever function under Hayek’s principles again. Persisting years of economic uncertainty has left a public unwilling to forgo the crutch of government support and stand on its own again. It will take years for the public to feel secure enough to limit government once more; thus, Hayek’s free markets do not appear to be a viable option in the near future.
In my view, Keynesian principles should be applied only in the beginning years of crisis. Otherwise, government should not intervene in stabilizing an economy that is in any other stage of the business cycle. The purpose of government should be to assist the economy during unforeseeable and persisting hardships; government has no place in constantly steering the economy. If people wish to live in a capitalist society, they must be willing to accept the reality of boom and bust. There is a time and place for government to step in, and “all the time, around the clock” is not the answer. Stagflation is proof that too much control can result in problems that are beyond government control. Costly government programs are a supposedly “helpful” measure that are self-harming inflictions in disguise. It is true that the economy will return to equilibrium without government intervention, and it is fear that prevents us from trusting in an natural, inevitable cycle. It is man’s hubris that allows us to believe we can tame a beast we have yet to understand.
Although no country with any mind for its international reputation would dare to follow West Germany’s non-interventionist path to recovery following the second world war, this same “limited government” policy has allowed Germany to emerge as the economic leader of the EU. The third election of Angela Merkel, head of Germany’s primary conservative party, to the chancellorship is indicative of the German public’s faith in continued limited government. This may be an indication for the US to forego its pride and look towards the Bundestag in re-designing its economic policies.
In addition, it can be said that if the trend continues and government policies continues to grow more restrictive, the future of so-called “American principles” seem threatened. In times of desperation, the call for “more government” has historically been the solution. We pride ourselves on being the spearhead of democracy and capitalism in the western world, but perhaps this reputation is endangered in the hands of an increasingly powerful government.
(I actually totally just contradicted all my political views right now. I really wanted to be incendiary and dramatic for once. Hope it was convincing!)
Keynesian economics is the view that in the short run, especially during recessions, economic output is strongly influenced by aggregate demand. Whereas Neoclassical economics focuses on the determination of prices, outputs, and income distributions in markets through supply and demand. I believe that we won’t go back to our old ways of a free market because we have been too dependent on the government today. Without the government or central banks helping to control and centralize the economy then during periods of downturns we won’t be able to return to full employment. The economy won’t miraculously fix itself once the government steps back. Keynesian policies seem to work, when Barack Obama was first elected he embarked on the greatest experiment in Keynesianism since Franklin Roosevelt’s “New Deal”, which was widely credited with getting the US out of the Depression. Hayek believed government’s best action would be to lower taxes, reduce its spending on goods and services, which is government involvement. Government needs to regulate something to keep the economy stable because the future is subject to change and the policies should be able to change with it. The economy can’t have nothing there to save it.
Keynes believes we should just do what helps with today due to the fact that we will one day die so we must help ourselves now and not later. However, Hayek believes that the economy will always fix itself and intervention is not needed. I side with Hayek due to the belief minimal goverment is for the best. The only concern is neither ideology knows how long it will take, 5 months or 5 years.
Tom Q.
I think I lean more towards the Keynesian side because I think that at least some government regulation is important for a successful economy. Also, considering that we were all taught the Keynesian side of economics, I feel like it is the side that I understand more and therefore I believe that it is the better side to be on. I do not necessarily disagree with Hayek's ideas, but I do think that Keynes' ideas make more sense. I feel like if I had more of an opportunity to thoroughly analyze both sides I would be able to form a stronger opinion. But, from what we have learned... Keynes is the dude.
Personally, I am at odds here. I find both sides of the argument to be compelling and intriguing; but, if I had to choose between an economic policy to implement it would have to be that of Keynes'. Most people when faced with problems nowadays don't always decide on solving them themselves, so they look towards a bigger power for help--the government. The Great Recession of 2008 was something many non-experts never saw coming. Millions lost their jobs and many continue to be out of work even today. In order to favor the American peoples' interests of government assistance in times of what many claim to be "crisis", it is imperative for the government to undergo a Keynesian-type policy. During recessions we need to get people back to work and in order to make that happen quickly, the government must act swiftly. People would be in outrage if the government were to stand aside and let things play out naturally. No sitting president will want to "do nothing" on the economy when it's in the dumpsters because they feel as if it's for the best interest of the nation. Presidents in the modern era and in the future will have to put up with the demands of their constituents and intervene in dire economic situations. Flaws of Keynesian economics include a bigger government, tax increases, and the possibility of future stagflation; however, people do not care about the future, the here and now is what is always on their minds. In order to solve problems of today, Keynesian economics should be in the forefront when it comes to fiscal policy decision making.
I believe the pendulum will swing back towards Hayek's free markets and limited government in the foreseeable future because there is a possibility that the U.S. House of Representatives will stay in Republican control, the U.S. Senate may go into Republican control, and there could be a Republican President in January 2017. If the U.S. House of Representatives, the U.S. Senate, and the U.S. President are controlled by Republicans, it could sway toward Hayek’s free markets and limited government because that resembles more right-wing views than left-wing views. Even though some people have become dependent on the federal government, free markets in the U.S. can work again. In the 1900s, Jimmy Carter was more Keynesian, but when Ronald Reagan became president, he was more towards Hayek’s economic philosophy, so I believe that free markets can work again. Even though I believe in aspect(s) of both Hayek and Keynes, I believe Keynes has the better argument about the role of Government in the economy because the Government should intervene in the economy to keep it out of a recession or a depression, and to lift the economy out of a recession or a depression if needed. I support Keynes because I believe that monetary and fiscal policy should be adjusted to the economic climate. For example, if there is high unemployment, taxes should be lowered, and government spending should increasing. If there is high inflation, taxes should be raised, and government spending should be lowered. Some aspects of Hayek’s theory I do not like is that he basically believed in little government intervention. Some government intervention is necessary, but the government should not have an overbearing presence in markets.
Marc Flynn
I support Hayek in this matter. I am a big believer in the idea that going into debt is not a good thing. I believe that a more complex and difficult fix that will fix the long run is better than a short easy fix that fixes the problem in the short run but ends up creating more problems in the long run. This is the problem with the Keynes ideology. By using government intervention and spending, the problem is fixed very quickly however it can make the economy very unstable. This instability can end up leading to more problems in the long run. While Hayek's ideas may not be the quickest or flashiest fixes, the safe and stable ways that Hayek suggests to fix the economy are better ideas.
I agree with Keynes economic ideas. I think that some government intervention, by shifting AD, will help to return the government to full employment quicker. I think that Hayek's policy of "getting out of the way" and letting the economy to work itself out will also work, but it would take longer to return to full output. In Hayek's version, a decrease in AD does not influence GDP, but causes the price level to decrease drastically which could potentially create even more problems. Over the past years, "wages and prices have not fallen as much as Hayek's models suggest they should." This uncovers a flaw in Hayek's beliefs.
After much deliberation, I decided to chose a side. I believe that Hayek's views on the economy are correct. I believe that the government shouldn't interfere with the economy because it is self regulating. The economic cycle occurs naturally and the flexibility of prices allows the economy to recover from recessions. The main reason I disagree with Keynes' views is that throwing money at problems doesn't always help. For example, when our country was experiencing stagflation, we only furthered our economic problems by increasing government spending. It was only after we did NOTHING that our economy returned to normal. Adam Smith developed the concept of the invisible hand, a force that regulates the economy. The Keynesians believe that it's necessary to guide the invisible hand, but when they use fiscal policy it only disturbs the forces of the economy.
I do not think that Hayek’s free market and limited government system will be implemented in the near future because many countries’ economies are still recovering from recessions. It has been demonstrated through history and in the most recent recession that in a recession, recovery is quicker when the Keynesian ideas of expansionary fiscal and monetary policy are implemented rather than leaving the economy to regulate and recover itself as Hayek suggests. Due to the 2008 recession, the U.S. economy has become very reliant on government support. It can be argued that it has become too reliant on government support to ever allow free markets to work again. However, free markets in the sense that Hayek suggested called for no government intervention whatsoever. Free markets in the Hayekian model would not allow for government to set minimum wage or pay out unemployment benefits. I doubt that a truly free market in this sense will ever exist in the U.S.
However, as the economy recovers fully and reaches full employment and peak prosperity, I think that government involvement will decrease significantly, returning to a free market model. Thus, my belief is that in economic downturns and recessions, the Keynesian model of increased government involvement will be implemented, and in times of prosperity, we will revert to a free market model of decreased government involvement. I think that Keynes has the better argument regarding the role of government because his argument is that the government should become involved when necessary to keep the economy at full employment. Thus, the return to the free market model with decreased government involvement that I predict for times of economic prosperity is in line with Keynesian theory.
Keynesian policies have been implemented in the U.S. during major economic downturns, and they have been effective. During the Great Depression, President Hoover believed, as Hayek theorizes, that the economy would fix itself and that increased government involvement would only hurt. Hoover’s policies worsened the depression. FDR, meanwhile, implemented a Keynesian approach by significantly increasing government involvement in the economy, and this led to recovery. In response to the 2008 recession, the Federal Reserve implemented a policy of large-scale asset purchasing that has been deemed effective in stimulating economic recovery. Thus, history has proven that Keynesian policy should dictate the extent of government involvement in the economy.
I really hope the tide won’t shift back to Hayek’s ideas; Keynes’ support of government intervention to help solve current economic problems has seemed to work in regards to FDR helping to end the depression with government aid (WWII helped too), and the government’s response to the great recession have shown that government intervention can be rather effective. Not only this, as society has reaped the benefits of government assistance, to suddenly deny the services and precedents it has established would simply not happen due to public outrage and lobbying groups in Washington.
It seems like the main problem with Hayek’s views is that that they focus too much on the long term. While fixing things in the long term should be a priority, repairing poor financial situations in the short term should be a top priority to help get the country on it’s feet as to support itself and compete economically in a global market.
I feel that Keynes has a more sensible idea of what the economy needs. Since "we're all dead in the long run", short fixes are all we need to care about. using Hayek's ideals, economic recovery would take sufficiently longer, whereas enacting a government policy is much more efficient. While inflation due to government policies can become an issue, it is not rapid enough in this point in time to be concerned about. Also, if the economy "stagflates" and no action is taken, both problems can only perpetuate. Using Keynes' ideals, one problem can quickly be solved and then the next can be dealt with. Conclusively, government action is necessary for a healthy economy, but only in moderation.
I believe that Hayek has the superior theory to Keynes. Both are far from perfect but I believe that Hayek's belief in an independent economy with government left out is correct. Our economy was once free of government regulation, and while some people didn't benefit, the overall health of the U.S. economy was good. However, as we've become more involved in the operations of the market and tried to control, we seem to be screwing it up further. Economies are self adjusting and will fix themselves in time. We adjust to whatever the current issue or problem there is and change with it. Keynes' theory of the government taking actions to stimulate the economy banks on the idea that it was meant to happen. Some of the parts of the economy should naturally die out but are kept on life support by the government which creates a burden and doesn't improve the economy for the future. The government has to overextend itself trying to plug holes in a leaking economy while it accumulates massive debt. In the process private business is taken out of the equation and diminished as it cannot naturally respond to the changes in the economy with the government holding on to pieces it doesn't need. This can be seen in the U.S. economy today and the recession we face. -Tom Harrington
Ryan E.
I believe that the United States economy has become to reliant on government support. The government began implementing quantitative easing since November of 2008. This increased spending by the Fed was supposed to end in early 2010. Instead, after supporting the economy for two years, a new policy of quantitative easing was introduced only a year later. I don't believe the U.S. economy would be able to return to a free market without the millions of dollars worth of quantitative easing supporting it.
I support Keyne's view on economic policy. The policy currently implemented by the United States is clearly effective, as GDP continues to grow despite high unemployment. Although it makes sense for the Economy to follow the same trends of the business cycle, the main problem is knowing when the economy will pick up again after a recession. I don't think it is worth the elongated periods of recision that will result from a free market stance on the economy. The government should be able to do what they see fit in speeding and regulation to promote growth in the economy and defy the business cycle.
Personally, I believe in the Keynesian economic philosophy and do believe that the government can help to steer the economy in a better direction. I think the 2008 recession is a good example of how effective government intervention in the economy can help the economy. During the 2008 recession, had the government not intervened with its stimulus package, the economy would have went into a depression. I think this is a good example of how government intervention can help to increase aggregate demand and help the economy. I think one of the biggest flaws of the opposing argument is that Hayek's philosophy isn't clear about when the economy will self correct in a free market system. For example, if an economy is in a depression, it may self correct, but if its 10 or 15 years down the road, then the government should intervene to try and kickstart the economy.
John F
I do believe that in the future the economy can shift towards more of a Hayek’s free market and limited government intervention. I say this because there can become a point in the future where the US economy is functioning well enough with a low unemployment rate and a low inflation rate that the government would slowly stop to intervene and still limit it slightly but not as much as they would under a Keynes idea. The economy has become too reliant on government. I believe that as of now if the government stopped supporting the economy we would have more economic problems. Keynes has a better argument about the role of the government in the US economy. He believes that the US Government can help the economy return to a stabile employment rate while in economic down turn, and that aggregate demand is the most important part of the economy and with government intervention you can kept that number high. I stand on the Keynes side because I believe that if the united states is going through a bad economic time and the government is not doing anything, the economy will either continue to fall or it will take much longer for the economy to return to a healthy/ stable state. The main flaw in Hayek’s economic is that with no economic intervention then you cant prevent something from happening. For example, if you see unemployment is going up, the government can cut taxes and raise government spend, which will help create jobs in the economy preventing a spike in unemployment.
Steven R
I believe that there is validity and truth in both Keynes and Hayek’s economic philosophies. While Keynesian economics implies that the AS curve is horizontal whenever aggregate demand decreases, and vertical whenever AD increases beyond the full employment level of output, Hayekians believed that AS is vertical, regardless of the level of demand in the nation. Personally, I believe that the Keynesian model for AS is the more accurate of the two models because the market doesn’t always rebound to equilibrium and stay constant with changes in the price level. For example, I believe that the market still has not fully rebounded back to the point it has achieved before the 2009 recession. Needless to say, the government used Keynesian strategies to try and fix the economy such as lowering the interest rates and using quantitative easing. However, I believe that had we done nothing, the economy would be even worse off because increasing government involvement and spending is imperative to stimulating the economy. Thus, the main flaw of Hayek’s strategy is that that pace of recovery is often excruciatingly slow and can even lead to worse situations before eventually recovering. Meanwhile, the main flaw of Keynes’ strategy is that political involvement often hinders economy, creating deficits and slowing down growth which could have been faster without any intervention
I believe the government should be able to step in during an economic crisis but ease up on control during times of prosperity. That said, I believe that in the next few years, Hayek's ideas will take a larger hold in the minds of people. One reason i think the government should step in during economic downturns is because, although classical economist may have faith that the system will re-balance, countless events have shown that the general populace is not willing to have the same faith. The great depression and the rebuilding of Europe after world war 2 being some examples of how people will lose faith in free capitalism before its even able to rebound. When the economy is doing well, i think that people will have more faith in a free economy because people will believe that the government is interfering with profits during this time.
My initial gut reaction is to chose Keynesian economics, because it seems non-productive to do nothing when an economy is in a recession. It seems like changing tax rates and government spending, as well as other stimulants to the economy, would help. Implementing fiscal and monetary policies definitely have helped in certain circumstances, but what about all the times when recessions went on and on and nothing helped? I think Hayek might be on to something. In a Hayekian economy, a fall in aggregate demand will have little to no effect on output or employment. Without the government interfering, wages and prices will rise and fall with the demand of the economy, while maintaining full employment. This seems like the most logical proposition in my opinion. It actually seems sort of ludicrous that the government would attempt to control such a large force. It’s like when you’re trying to dig a hole at the beach but the sand keeps falling in again as much as you try to stop it. The most fatal flaw with Keynesian economics is that it focuses on the short term. Even if it does help the economy, it will be temporary, which of course it slightly pointless in the long run. I’m going to side with Hayek and say that we at least need to try his way thoroughly before abandoning it.
Cristiana DiasI feel that Keyne's ideas will most definitely be followed and used for the foreseeable futures. Almost every country out there has some sort of government control on their country's economy and it works well for them. If economies were not regulated by their government and they depended on themselves to reconstruct, we would be unsure as to how long the reconstruction of the recessionary/inflationary economy would take. The unknown time span of an unregulated economy is the strongest argument against Hayek's ideas. With a regulated economy, at least we are certain that it would take a shorter amount of time to repair itself, being that it would be the job and priority of certain officials to maintain economic stability. Keyne's ideas have been working for years now within our economy, within some of the biggest economies in Europe, in addition to that of China.
Ken Pandaleon
I believe that keynesian economics should be used. He is correct in saying that decreased confidence leads to decreased consumption, leading to an economkic recession. Left alone it will eventually rebound as Hayek suggests, but according to Keynes, "In the long run we are all dead." Hayek argues that increasing government spending to offset the decrease in consumption will lower investment, he believes that taking no action would be better for the economy which, in my opinion, cannot be better than a partially crowded out increase in GDP, but none the less an increase in GDP. I believe that government intervcention is vital to maintain a healthy economy, as it provides the necessary stabilization, so we do not have to go through the terrible swings of a Hayek economy.
I believe that Hayek's ideas aren't as far out and crazy as people make them seem. Leaving the market to sort things out on its own wouldn't be such a bad idea. It should be up to the markets that determine price level and production, not the government. The problem with Keynesian economics is that too much government intervention could mean that markets will not longer be able to be independent.
In today's society, we have become so dependent on government intervention that to try Hayek's theories would seem ludicrous. Looking back at Reagan's presidency, his economic theories were influenced by Hayek and the economy preformed well. Interest rates, unemployment, and inflation fell faster under Reagan than before or after his presidency.
I think that, because there really hasn’t been that much data to back up either point, the pendulum will continue to swing between the two for a bit. However, I believe that, as the years go bye, the world will begin to realize that Hayek’s philosophy of the government leaving the economy completely alone does not work. I think that Keynes definitely has the better argument about the role of government in the economy because it’s been proved time and time again, not just during the Great Depression and the Great Recession, that a lack of government intervention gives businesses the tacit approval they need to engage in dangerous, and frankly disgusting from a moral standpoint, practices that range from child labor and unclean conditions involved in the production of food to less obvious ones such as the purchase of high risk investments by financial institutions, which led to the 2009 recession, and neglecting to recall a car that was responsible for the death of some who drove it because the costs would cut into the company’s profits. Such things could easily be prevented with more government oversight in the economy and are given freedom to exist without it.
One of the main arguments of Hayek is that the best thing the government could do in a recession or a depression is cut taxes to encourage spending and enable private companies to hire more. However, this line of thought has been proven false time and time again because of the nature of corporations. They will not, and do not, take any tax breaks given to them and go hire more workers, instead pocketing the money to add to their own profits. Keynesian policies lead to the protection of employees and consumers, while Hayekian policies allow it. Overall, Keynesian economics provide a little bit of control over the economy, while Hayek’s economics do nothing to provide hope, instead telling those suffering to simply “wait it out”.
I do not believe that the pendulum will swing back in Hayek's direction. His philosophy of free markets and limited government falls inferior to Keynes'. For the foreseeable future, the government will always intervene in economic policies to keep the economy stable in society. As stated in Welkers Economics, "The idea that through well planned economic policies, governments and central banks could intervene in a nation’s economy during periods of economic downturn to return the economy to its full-employment level, or the level of output the nation would be producing at if everyone who was willing and able to work was actually working." Government intervention with fiscal policy is the best idea to keep the economy from becoming unstable. Society is reliant on government but it definitely should be. Without government intervention, the economy would spiral downwards and go into compelte chaos and there would be no definite answer to fix it. While a little bit less government intervention could work in order to give free markets more power, the government should still have a place.
Megan Courtney p. 3
I agree most with Hayek. I think the government should not interfere too much with natural economics. Sure there are some points where the government should step in such as in major disasters. But most of all I think that the economy is wired to fix itself. If the government works too hard to fix so many small problems it’s going to have a difficult time fixing the larger ones. Also, the more the government intervenes the less the economy is going to go back to the natural order of itself. The government is going to put the economy off its natural track and then it will never be able to fix it again.
Kenneth H.
I think the role of government in the economy should be limited, but both Hayek and Keynes have radical opposing views. I believe there is a place in the middle where government keeps checks on businesses but does not interfere with the role of business. Hayek makes a good point when he says the free market is always superior to the government when it comes to allocating resources towards the production of the goods and services consumers demanded, therefore that should be the free market’s job, not the government’s. However, Hayek’s views were a bit extreme when he stated that no government intervention is needed at all when aggregate demand falls, because in fact, a fall in AD DOES have a negative effect on output and unemployment. There needs to be government mandated things such as minimum wage laws and other worker laws to ensure workers aren’t being taken advantage of. Since the goal of business is to make as much profit as possible, government must in some ways must ensure the safety and quality of life of the people. Keyne’s had some good points in the fact that government should lower taxes and increase spending during recessions to get the economy back to a better position. However, the government can’t spend itself out of every economic problem because inflation occurs, and keyne had no answer to inflation, which is a huge flaw in his economic philosophy.
Greg C. period 6
Although the ideas of Keynes has been viewed as fact. However, a Hayek based economy seems to be the most beneficial for any economy in the long run. Which of course, JMK said "in the long run we are all dead." But, there's more to this world than the selfish idea that we are the only generation that matters. And besides, Hayek's economy seems to provide more control and does so with basically no effort. But like I stated a selfish economy has no place in this world and I feel that a Hayek based economy can bring about a new world of monopolies. It is in my professional opinion that although both seem perfect on paper they do not seem to actually function while in use. So we should try the Chionchio method where the government does have a say in how the corporations run but as whole the economy should be able to move freely without being so tightly gripped by the government.
Christian Castelli- I don't think that the economy will ever go back to a true Laissez-faire free market because consumers now feel safer by having the government protect them from the big corporations. If there is no regulation, it can be much easier for big companies to buy smaller ones which will weaken competition and raise prices. Society has become more and more reliant on the government to right their wrongs such as the bailing out of the American car companies and banks in 2008. I think that too much regulation can also stunt the competition and slow the economy because the money for bailouts has to come from the tax payers. My position is that there should be more of a free economy with some regulations only if corporations are becoming too powerful.
Pat C.- I am in favor of Hayek's view on the economy and economic practices. I think that less government intervention is better and markets should remain free and open. Economies are nearly always self fixing, but allowing the economy to correct itself takes time and exactly how long is never known. The complete removal of the government from the economy doesn't make sense as certain administrations and programs are vital, like the FDA and SEC. Most government involvement in the economy only postpones economic problems that in future become to big to stop and devastate the economy. One of the only real examples of Keynes' ideas working is the response to the Great Depression. The increased government spending as well as the US involvement in WWII brought the country out of the largest bust ever. An increase in spending, however, leads to a bigger deficit and a larger deficit requires higher taxes or more loans. Having markets free of government involvement will prevent any businesses from being reliant on aid or subsidies.
I believe that Hayek has the better claim than keynes does. yes it is good to have some government intervention but the idea of little government intervention would be the better route. People aren't gonna have to be dependent of government support and eventually the prices will stabilize to a price where people will be able to make purchases. The economy seemed to work after the desecration of Germany post WW2 and Hayek's ideology helped to benefit the once powerful nation. It's ideas are good and us today are capable of doing it. Yes we rely on government a lot in this era but we can do it. Yes it's gonna hurt us in the short run but in the long run our economic growth will be tremendous. Little government intervention is key to a better economy. It allows for citizens of our country to be always working to be self sufficient and doesn't allow them to be lazy and sit around and do nothing.
Jesse M.
I believe that Hayek’s ideas would work better than Keynes’. Hayek believed in a free market and this is beneficial because it will force companies to work harder to survive. With out any possibility of being revived by the government, a company must make sure everything is running smoothly and profits are constantly increasing. It must also be the strongest competitor, or at the top of the list. This increased competition due to every business working harder will also impact the consumer positively. The consumer will have the opportunity to get these better/efficient goods or services. Ultimately, the nation will be doing better as a whole. With Keynes’ ideas, he counteracts unemployment with an increase in the money supply and this can lead to inflation. He also counteracts inflation with a decrease in the money supply, which will lead to unemployment. Under Hayek’s ideas, the people will realize when there are too many people unemployed and the prices will drop and wages will drop so that more people will become employed. The invisible hand concept will come into play when everyone fights for himself, ultimately boosting the economy as a whole.
Even at an early age, I was a Hayek at heart. I could never comprehend the idea that spending money would "help" the economy. Although I am progressive minded on most social issues, I disagree with the state of welfare/government spending/strong federal government. Anyway, this is why I disagree with Keynesian economics:
Ben C.
1) The whole ideology is based off one one extreme example. Yes, in times of a severe crisis such as the Great Depression, government spending to increase inflation and lower unemployment might necessary; BUT, in regular times, we should let the economy and the market do its job independently. No system of government intervention can benefit everyone without sacrificing the concept of fairness, which is what keeps people in a competitive mindset and gives them an incentive to work harder.
2) In Keynesian Economics, a fall in AD can have an impact on the economy, but in Hayek's theory a decrease in aggregate demand will have no effect on output or employment whatsoever. There's not the added burden of additional government guidelines that put pressure on businesses. Poverty in any society is inevitable, but instead of giving out more welfare checks, we should encourage the wealth of our nation to donate money to those who are less fortunate or invest in philanthropy that will indirectly assist the poor.
Ultimately, there is no right answer. Theories will always be just theories, but put into practice they may prove to be efficient in the short term or efficient in the long term with greater adverse economic repercussions after a booming economy. I tend to favor hayek's policy though.
I agree with a Keynesian view of economics. It appeals to both past events, and logic, that Keynes is most correct with his ideas of economic theory. The economic principles we have learned over the course of this year make a large amount of sense, and for this reason, are put into widespread effect in the Unites States and other major countries around the world.The idea that by raising the disposable income of individuals, consumption spending increases, increasing GDP seems obvious. And if the government has the ability to do so, then they should interfere. Especially when looking at obvious examples such as The New Deal’s effectiveness to reduce depression, among many other examples
Sorry, posted already, my posts never work apparently...
Keynes' ideas have become the dogma in recent years, but do you believe the pendulum will swing back towards Hayek's free markets and limited government in the foreseeable future?
I believe the pendulum will swing back because “across Europe, government spending is being slashed and taxes are being raised, both policies that threaten to further reduce aggregate demand. Deregulation is the battle cry of the Republican Party in the United States one year before the next presidential election. Presidential candidates are promising to ‘cut taxes, cut spending and cut government’, which sounds like a Hayekian battle cry.”
Has society become too reliant on government support to ever allow free markets to work again?
I do not believe so, but we will see for sure in a few years as “deregulation is the battle cry of the Republican Party in the United States one year before the next presidential election. Presidential candidates are promising to ‘cut taxes, cut spending and cut government’, which sounds like a Hayekian battle cry.”
Which Economist has the better argument about the role of Government in the economy?
I think that it depends on the state of the economy. If the economy is in a recession I think that we cannot sit idly by, but if the economy is in a period of growth we do not need to control it.
Where do you stand on the issue?
I think that with the state of the economy still being so fragile we need to continue enforcing the Keynesian method, but once we are securely out of the recession the government will be able to step back and allow the economy to run itself.
What are the best reasons to support your side?
Reasons that support the continuation of the Keynesian method are “wages and prices have NOT fallen as much as Hayek’s model suggest they should, and economic output has declined in many Western nations and remains below the levels achieved in 2007 in many places. Most economists would argue that this prolonged recession is likely due to a weak level of aggregate demand. And the economic policies of many Western nations have reflected the Keynesian belief that government can ‘fix the problem’ through stimulus plans involving tax cuts, spending increases, and low interest rates.”
Identify the main flaws in the opposing argument.
The main flaw in the opposing argument is the effect of recessions on output and employment. As seen in the last recession, output does in fact decrease and, in some countries, is still not equal or above pre-recession levels.
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