Hayek vs. Keynes Round Two

Steven Horwitz

Here it is.  Complete with Mike Munger in a speaking role and cameos by Joe Salerno and Ed Stringham, and a whole bunch of great lines.  My contribution to the Hayek-Keynes debate is here.  Great work by John Papola and Russ Roberts once again!

Comments

[Stephan]

Congrat! Another cool video. I must admit you GMU guys are really accomplished in marketing your distorted antique economic world view. But this video also demonstrates that there is no equality of arms in presenting heterodox economic ideas. It certainly pays to side with super-rich plutocrats. Wise decision!

[Steve Horwitz]

Whose money do you think is behind that video Stephan? You might be surprised at the answer.

[Richard Ebeling]

This video is equal to or even better than the first one.

I have been most impressed by the degree to which the lyrics truly capture theoretical and policy views of both Keynes and Hayek.

There is very little exaggeration or "poetic license."

And the scene with Hayek facing a "body search" was brilliant. As was Bernanke passing out the "QE" cash around the poker table.

(Did people notice Ed Stringham's cameo at the end as a reporter talking to Keynes?)

This is what the internet was made for!!

Richard Ebeling

[Daniel Kuehn]

The "Hay-eksplosives" line was genius.

Richard - I'm surprised at what you say about capturing the theoretical views. The nagging problem I have with both videos is that they promote this view of Keynes as "Y=C+I+G so if you increase G then Y will increase". That's confusing an accounting identity with a behavioral law. That's precisely what students are taught that Keynes DID NOT say. And yet that's the Keynes that's presented in both videos (to say nothing of the central planning/top down label he's given).

It's tough to be in the position of raising this point because I do agree we have to consider artistic license and I don't want to minimize the fact that I thoroughly enjoy both of these videos - but they seem better for the viewer who already knows Keynes and Hayek rather than for the viewer who is interested in learning about Keynes and Hayek.

Great video, though! And I agree with what many have said - this is even better than the last one.

[Roger Koppl]

Daniel,

I think the C+I+G thing is totally in Keynes. When an irrational wave of pessimism hits, the government should step in to fill the gap and prevent a decline output and employment. When I goes down, make G go up. The whole business of the marginal propensity to consume suggests that C is a stable function of Y, so the issue is G vs. I. Yes, Y= C+I+G is an accounting identity, but why do we discuss that identity rather than any of the infinite number of other identities we might discuss? Why, for example, don't we say that Y is the sum of spending on goods bigger than an breadbox and goods smaller than a breadbox? We discuss that identity because it isolates the supposed problem variable, I, and the imagined policy tool, G.

[Iván]

Great Video!! And there's clearly a winner: The bold one ;).

[Daniel Kuehn]

Any autonomus spending is going to give you a multiplier effect, Roger - whether it's G or I. Certainly Keynes wouldn't shy away from the fact that G has as much a multiplier effect as I (or the autonomous component of C, for that matter!). But the problem for Keynes - and the solution for Keynes - is the distortion in the interest rate that chokes off investment. Government spending lowers the interest rate and of course will also have beneficial multiplier values.

When I wrote up these thoughts on my blog, I noted that public works are just a helicopter drop - only they're a helicopter drop that we get a bridge out of in the process. The crux of the Keynesian problem and the Keynesian solution is what's going on with the interest rate.

[Richard Ebeling]

I do agree with Roger about the relationship between "I" and "G" in Keynes' thinking.

The marginal propensity to consume is considered to be a relatively "stable function" based on current income (not income expectations, which is what Friedman tried to correct in the Keynesian framework).

Private investment is the unstable variable due to its being based on "animal spirits" and potential waves of "pessimism" and "optimism" independent of the rate of interest, per se.

When all savings out of current income is not taken up by private sector investment, the Keynes' "cure" is for the government to run budget deficits and spend that which is not borrowed by the private sector.

This is Keynes' own view in "The General Theory," and not some later "Keynesian Economics" different from "the economics of Keynes."

Richard Ebeling

[Steve Horwitz]

I third Richard and Roger on the fact that the C+I+G model/story is in The General Theory. Each time I re-read parts/all of the book, I'm always struck by how much of what he wrote really is the income-expenditure model. I think the Leijonhufvud reading of Keynes is a much better model of the macro-economy, but it's a Way Too Wicksellian reading of the actual text.

[Stephan]

Steve. My comment wasn't meant to diminish the video as such. I meant it: it's cool! Now in regard to your question: Aren't you guys partly bankrolled by the Koch brothers ;-) Anyhow I like the video and posted it to help out with exposure to viewers on the left side of the aisle.

[Steve Horwitz]

"You guys" is an interesting aggregate. I have no idea if there's any Koch money behind the video (as if it matters), but the fact that you assume that anything that argues for a particular worldview must be funding by them is, itself, very interesting.

In fact, John Papola has his own production company.

[Mathieu Bédard]

I would even argue that there are no "behavioral laws" in Keynes. It's macro, it's "crowd" level laws. I wouldn't call that "behavioral".

[Roger Koppl]

IMHO we really should not forget the limits of reason. If reason is fragile, then disagreement is not necessarily a sign the someone is irrational or a sellout or anything of the sort. I would not want to end up like Danton telling the Estates General that, as reason is one, he was sure all assembled members would agree with him!

[Richard Ebeling]

In reference to "Stephan's" "you guys's" comment about funding of the video, and one presumes "coordination problem" as well, let me just say that this is a highly Marxian conception of the intellectual arena.

The implicit assumption is that "ideas" must serve some "class interest" (the "Koch Brothers' capitalist interests), and intellectuals who advocate individual liberty, free market, limited government views on various social and economic issues must be doing so as "hired lackeys."

Or such an intellectual must be too stupid to understand his "real" class interests and is the "useful idiot" of the capitalist exploiters.

I've known Steve Horwitz for many years. He is neither a "useful idiot" or a mind-for-hire. And neither are any of the other "Austrian" economists I know who share their comments on "Coordination Problem."

Richard Ebeling

(P.S.: Don't forget to send me the $5 for saying this, Steve.)

[Stephan]

@Richard Ebeling
Do you have a problem with good old Charlie Marx? I think you are on the point that this is class warfare. The only difference is that this war is waged from the top end of town. And of course the intellectual bidding is done by hired guns. No mystery here. Read "Zombie Capitalism" by Chris Harman ;-)

By the way: Asking for only $5 is a shame! You should ask for your "fair" share of the bounty.

[Daniel Kuehn]

Stephan -
How is a Marxist disappointed with the (scripted and choreographed) defeat of the bourgeoisiest of the bourgeoisie: John Maynard Keynes? The same Keynes who (stealing from Trotsky) called Marxian economics "together with theological literature, perhaps the most useless, and in any case the most boring form of verbal creation".

Certainly you can cheer with John and Russ over his defeat!

I do agree that Richard seems like he's getting short-changed.

[Stephan]

@Daniel
I'm not a Marxist :-) But I think that Marx's thinking can contribute a lot to the current debate just as reading Hayek again. My two cents about John Maynard: great thinker bad author. The GT is unreadable. I would recommend Kalecki. Way better! Hayek beats Keynes because he's really good in writing. Should have got a Nobel in literature instead of economics.

[Roger Koppl]

The video (remember the video?) is a really fine effort. I thought it was brilliant to have JMK win in a bogus TKO. How apt!

[Arash Molavi]

I love it! So many little details, great lyrics, great rap.

[Troy Camplin]

I write extensively about Austrian economics, and I've even started the blog Austrian Economics and Literature. Where's my Koch money?

[Charles and David Koch]

Sorry about that Troy - the check's in the mail.

OK... back to our lair to plot more libertarian proselytizing.

[Troy Camplin]

LOL

[Harrison Searles]

The allusion to the Malthus-Say correspondences was definitely my favorite part.

[Barkley Rosser]

I think it is hilarious, with Papola as Bernanke particularly a hoot, along with Ed Stringham as the reporter so assiduously interviewing Keynes after his bogus boxing victory.

I do have a minor gripe about having Hayek saying that Keynes supported a "central plan." Steve may be about to post on this, but Keynes did not support the sort of command central planning that Hayek criticized in Road to Serfdom, and it should be kept in mind that Keynes praised RtF when it first came out.

Of course, Keynes did support government intervention to stabilize aggregate demand, but that is not the sector-by-sector or worse, firm-by-firm command planning done in the USSR, and Keynes specifically opposed that.