This is a comment to an op-ed piece that was published in the NY Times by Paul Krugman. Follow this link to the original article http://www.nytimes.com/2011/12/30/opinion/keynes-was-right.html?_r=1
I have been thinking about this article for some time now [because thats what I do :(], and I think there is merit to the argument that Hayek's work was written for a particular time, and that Keynes's theory is more general (hence the title of his seminal work). An economy ladden with too much government overreach is surely bound for 'serfdom' (Hayek's argument in a nutshell - read the "Road to Serfdom" for details).
This is why classical liberal ideas appealed to me when I first came to this country. Having experienced hyperinflation in Zimbabwe, and the accompanying abuses by the state, Hayek, Ludvig von Mises, and the entire Austrian school really appealed to me. We must remember that Mises, Hayek's mentor, lived through the Nazi atrocities, and I believe this is why their predictions, when intepreted by the tea party folks often seem apocalyptic - branding Obama as Hitler (see Glen Beck et. al).
Keynes, on the other hand, is writing about a more advanced economy with near 'full employment'. He found a crack in the classical theory, which argued that supply (as in labor supply) creates its own demand (Say's Law). More specifically, the classical school proposed that unemployment can be solved if people are willing to work for less. If there are people around willing to work, jobs will spring up to make use of them. If people are unemployed, it must be because they’re refusing to take the job. So the argument went. But Keynes argued, (and Greece and Italy are proving him right) that people would go on strike if you cut their nominal wages, for example. BUT, they would rarely go on strike demanding a raise if the price of bread went up. So we are often wiling to settle for real wage cut instead of a nominal wage cut. In other words, inflation (NOT the kind we experienced in Zimbabwe), might actually be a better choice than wage cuts. And in an economy where consumers are deterred from spending because they are unemployed, such as the one we live in today, government spending can provide the needed spark.
I believe economics professors today need to do a better job of instructing students with regard to these two powerful works that define the field today - with particular attention to context. Hayek and Keynes are not always mutually exclusive and they are both certainly relevant today for different reasons (many to share here). In an alternate universe where I teach intro to econ, I would assign Hayek's "The Road to Serfdom", and Keynes's "The General Theory of Employment, Money, and Interest" as the core readings, and merge introductory micro and introductory macro into one course. This will not only do justice to the subject, but would spare millions of students from the sometimes droning supply and demand lectures, which assume away more than they should :)
I have been thinking about this article for some time now [because thats what I do :(], and I think there is merit to the argument that Hayek's work was written for a particular time, and that Keynes's theory is more general (hence the title of his seminal work). An economy ladden with too much government overreach is surely bound for 'serfdom' (Hayek's argument in a nutshell - read the "Road to Serfdom" for details).
This is why classical liberal ideas appealed to me when I first came to this country. Having experienced hyperinflation in Zimbabwe, and the accompanying abuses by the state, Hayek, Ludvig von Mises, and the entire Austrian school really appealed to me. We must remember that Mises, Hayek's mentor, lived through the Nazi atrocities, and I believe this is why their predictions, when intepreted by the tea party folks often seem apocalyptic - branding Obama as Hitler (see Glen Beck et. al).
Keynes, on the other hand, is writing about a more advanced economy with near 'full employment'. He found a crack in the classical theory, which argued that supply (as in labor supply) creates its own demand (Say's Law). More specifically, the classical school proposed that unemployment can be solved if people are willing to work for less. If there are people around willing to work, jobs will spring up to make use of them. If people are unemployed, it must be because they’re refusing to take the job. So the argument went. But Keynes argued, (and Greece and Italy are proving him right) that people would go on strike if you cut their nominal wages, for example. BUT, they would rarely go on strike demanding a raise if the price of bread went up. So we are often wiling to settle for real wage cut instead of a nominal wage cut. In other words, inflation (NOT the kind we experienced in Zimbabwe), might actually be a better choice than wage cuts. And in an economy where consumers are deterred from spending because they are unemployed, such as the one we live in today, government spending can provide the needed spark.
I believe economics professors today need to do a better job of instructing students with regard to these two powerful works that define the field today - with particular attention to context. Hayek and Keynes are not always mutually exclusive and they are both certainly relevant today for different reasons (many to share here). In an alternate universe where I teach intro to econ, I would assign Hayek's "The Road to Serfdom", and Keynes's "The General Theory of Employment, Money, and Interest" as the core readings, and merge introductory micro and introductory macro into one course. This will not only do justice to the subject, but would spare millions of students from the sometimes droning supply and demand lectures, which assume away more than they should :)
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