Wednesday, August 03, 2011

John Maynard Keynes Vs Friedrich August Hayek live on the BBC

Interesting article on the two economists, Keynes & Hayek. Obviously as a socialist I'd be on the Keynesian Economics side of the debate :

As their economies contracted, governments responded to their mounting budget deficits by raising taxes and cutting spending.

The Great Depression bottomed out at the end of 1932, with British unemployment having reached 20%, American unemployment even higher.

Keynes wrote the General Theory in 1936 to explain why the recovery was so feeble.

His revolutionary proposition was that following a big shock - usually a collapse in investment - there were no automatic recovery forces in a market economy.

The economy would go on shrinking until it reached some sort of stability at a low level.

Keynes called this position "under-employment equilibrium".

The reason was that the level of activity - output and employment - depended on the level of aggregate demand or spending power.

If spending power shrank, output would shrink.

In this situation it was the government's job to increase its own spending to offset the decline in public spending - that is by running a deficit to whatever extent necessary.

To cut government spending was completely the wrong policy in a slump.

When an economy is booming, a hair shirt at the Treasury is the right policy, when it is stagnating it is the wrong policy.

Keynes's message was: you cannot cut your way out of a slump; you have to grow your way out.

Eighty years on we have still not fully learnt the lesson.

Three years after the collapse of 2008, our economy is flat: there are no signs of growth, nor can the Osborne policy of a thousand cuts produce any.

No comments: