Thursday, July 28, 2011

Economics: John Maynard Keynes vs. Friedrich von Hayek

I heard about this video a while back, an education on the two economic theories that influence political decisions, that is John Maynard Keynes vs. Friedrich von Hayek theories. Adherence to one or the other falls along party lines: Democrats tend to be pro-Keynes, who theorized that too much saving makes for a stagnant economy and if the economy stalls, the government may have to intervene to stimulate it with spending; Republicans tend to line up behind Hayek, who thought the market would take care of itself, and so, the government should not intervene at all.

You can see how Hayek would fit with the Republican desire to shrink government and privatize services that have usually been provided by the government and also push for no regulation of industry, the mindset that gave us the foreclosure crisis. (Is it possible that this is why some banks have hoarded the money they received from the government rather than used it to lend money? Is it possible that proponents of laissez-faire capitalism wanted to sink Keynesian theory and Obama at the same time? Or maybe they see something horrible coming for which we should all be preparing but aren't?) The video explains these two economic theories via rapping.

A well-written, easy-to-understand piece "What is Keynesian Economics?" is posted at With the debt ceiling crisis and associated drama, I thought this would be a good time to post this video. You can watch part 2 here.

I tend to believe almost everything works best in moderation. It's wise to save for a rainy day, but all saving all the time is bad for the economy and enjoying life in general. However, living on credit is crazy as is making rotten loans to people--loans with balloon payments for instance--is also a crummy way to do business. Some of those bankers who made subprime loans should be in jail now and perhaps people who want to buy houses should take a one-hour course first on how to understand the fine print of loan documents. But who am to question the rich and powerful in America? Do those of us not in that club even matter in this country?

1 comment:

msladydeborah said...

I think that there is an aspect our POC economics that needs to be explored in depth. How we spend out income and who actually saves would be interesting. I believe that the amount of money spent on vanity items conumes a lot more income than many people realize. Communications would probably rank high on the list and entertainment.