Tuesday, June 29, 2010

Hayek's resurgence (vs. Keynes)-- the Sequel

Keynesianism has been intellectually dead for 35-40 years. But it is the grand zombie of democratic politics. Since the benefits of government activity/spending tend to be relatively obvious while its (typically larger) costs are relatively subtle, people (politicians and laypeople) routinely over-estimate the net impact of government activity.

Then, people push Keynesianism far enough or long enough-- and its flaws become obvious enough for enough people to notice.

Here's Russ Roberts in the WSJ on this playing out in the most recent resurgence of Freidrich Hayek:

When Glenn Beck recently explored Hayek's classic, "The Road to Serfdom," on his TV show, the book went to No. 1 on Amazon and remains in the top 10. Hayek's persona co-starred with his old sparring partner John Maynard Keynes in a rap video "Fear the Boom and Bust" that has been viewed over 1.4 million times on YouTube and subtitled in 10 languages.

Why the sudden interest in the ideas of a Vienna-born, Nobel Prize-winning economist largely forgotten by mainstream economists?

Hayek is not the only dead economist to have garnered new attention. Most of the living ones lost credibility when the Great Recession ended the much-hyped Great Moderation. And fears of another Great Depression caused a natural look to the past....now that the stimulus has barely dented the unemployment rate, and with government spending and deficits soaring, it's natural to turn to Hayek. He championed four important ideas worth thinking about in these troubled times.

First, he and fellow Austrian School economists such as Ludwig Von Mises argued that the economy is more complicated than the simple Keynesian story....

Second, Hayek highlighted the Fed's role in the business cycle....

Third, as Hayek contended in "The Road to Serfdom," political freedom and economic freedom are inextricably intertwined....

The fourth timely idea of Hayek's is that order can emerge not just from the top down but from the bottom up. The American people are suffering from top-down fatigue....

Despite the caricatures of his critics, Hayek never said that totalitarianism was the inevitable result of expanding government's role in the economy. He simply warned us of the possibility and the costs of heading in that direction. We should heed his warning. I don't know if we're on the road to serfdom, but wherever we're headed, Hayek would certainly counsel us to turn around.


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