Monday, February 15, 2010

"Fear The Boom And Bust" Hayek vs. Keynes Rap Anthem

Video embedded below.



I vote Hayek over Keynes.

Update (4/7/2010): Video Explained. End of Update:

Lyrics

"We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No… it’s the animal spirits

[Keynes Sings:]

John Maynard Keynes, wrote the book on modern macro
The man you need when the economy’s off track, [whoa]
Depression, recession now your question’s in session
Have a seat and I’ll school you in one simple lesson

BOOM, 1929 the big crash
We didn’t bounce back—economy’s in the trash
Persistent unemployment, the result of sticky wages
Waiting for recovery? Seriously? That’s outrageous!

I had a real plan any fool can understand
The advice, real simple—boost aggregate demand!
C, I, G, all together gets to Y
Make sure the total’s growing, watch the economy fly

We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No… it’s the animal spirits

You see it’s all about spending, hear the register cha-ching
Circular flow, the dough is everything
So if that flow is getting low, doesn’t matter the reason
We need more government spending, now it’s stimulus season

So forget about saving, get it straight out of your head
Like I said, in the long run—we’re all dead
Savings is destruction, that’s the paradox of thrift
Don’t keep money in your pocket, or that growth will never lift…

because…

Business is driven by the animal spirits
The bull and the bear, and there’s reason to fear its
Effects on capital investment, income and growth
That’s why the state should fill the gap with stimulus both…

The monetary and the fiscal, they’re equally correct
Public works, digging ditches, war has the same effect
Even a broken window helps the glass man have some wealth
The multiplier driving higher the economy’s health

And if the Central Bank’s interest rate policy tanks
A liquidity trap, that new money’s stuck in the banks!
Deficits could be the cure, you been looking for
Let the spending soar, now that you know the score

My General Theory’s made quite an impression
[a revolution] I transformed the econ profession
You know me, modesty, still I’m taking a bow
Say it loud, say it proud, we’re all Keynesians now

We’ve been goin’ back n forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Keynes] I made my case, Freddie H
Listen up , Can you hear it?

Hayek sings:

I’ll begin in broad strokes, just like my friend Keynes
His theory conceals the mechanics of change,
That simple equation, too much aggregation
Ignores human action and motivation

And yet it continues as a justification
For bailouts and payoffs by pols with machinations
You provide them with cover to sell us a free lunch
Then all that we’re left with is debt, and a bunch

If you’re living high on that cheap credit hog
Don’t look for cure from the hair of the dog
Real savings come first if you want to invest
The market coordinates time with interest

Your focus on spending is pushing on thread
In the long run, my friend, it’s your theory that’s dead
So sorry there, buddy, if that sounds like invective
Prepare to get schooled in my Austrian perspective

We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No… it’s the animal spirits

The place you should study isn’t the bust
It’s the boom that should make you feel leery, that’s the thrust
Of my theory, the capital structure is key.
Malinvestments wreck the economy

The boom gets started with an expansion of credit
The Fed sets rates low, are you starting to get it?
That new money is confused for real loanable funds
But it’s just inflation that’s driving the ones

Who invest in new projects like housing construction
The boom plants the seeds for its future destruction
The savings aren’t real, consumption’s up too
And the grasping for resources reveals there’s too few

So the boom turns to bust as the interest rates rise
With the costs of production, price signals were lies
The boom was a binge that’s a matter of fact
Now its devalued capital that makes up the slack.

Whether it’s the late twenties or two thousand and five
Booming bad investments, seems like they’d thrive
You must save to invest, don’t use the printing press
Or a bust will surely follow, an economy depressed

Your so-called “stimulus” will make things even worse
It’s just more of the same, more incentives perversed
And that credit crunch ain’t a liquidity trap
Just a broke banking system, I’m done, that’s a wrap.

We’ve been goin’ back n forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No it’s the animal spirits


“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

John Maynard Keynes
The General Theory of Employment, Interest and Money


“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

F A Hayek
The Fatal Conceit
"

15 comments:

  1. I saw this a couple weeks ago its pretty informative, and funny.

    I think its odd however that it presents a pretty polarized view of keynes and hayek. The reality is they both Agreed on alot and spent most of their lives working on different aspects of economic theory. Hayek, like the rest of the austrian school real business cycle theorists was out to prove that boom and busts are endemic to capitalism, whereas Keynes was trying to take a macro perspective in order to solve serious societal problems due to the structure of capitalist systems. During the depression it was Hayek who said "1 in 4 germans are unemployed because they are choosing to consume leisure"- that still seems insane.

    for example Alan Greenspan is a serious free market guy and he, like Keynes, thinks the government should respond to economic downturns by boosting spending via lower interest rates. Milton Friedman thought the same thing. Ben Bernanke, conservative Republican, has the same view. And it’s perfectly coherent to both think that fiscal stimulus is useful and also that government spending is almost always wasteful—you just need stimulus that’s heavily weighted toward tax cuts.

    Karl Marx was a bit of a real business cycle theorist who would agree with the “Austrian” perspective that busts and mass unemployment are just part of the capitalist process. That, to Marx, was one reason to get rid of capitalism. And to Keynes, checking the Marxist attack on capitalism was one reason to pursue stabilization policy. I think it’s perfectly open to the Keynesian to concede that there is some “real,” structural element to unemployment while merely denying that the business cycle is all real or totally resistant to remediation.

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  2. Of course "real business cycle" theory seems fine to people in positions of political power, until of course it runs into the wall of economic interdependence- then everyone goes scrambling to become a Keynesian

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  3. @Ian Spencer Dubrowsky - it is not odd to focus on the agreements because there is no point in arguing over what you agree on.

    The problem with 'spending stimulus' and to a slightly smaller degree 'tax cut stimulus' not paired with spending cuts are the deficits. The government can not pull money out of thin air. It either takes it from the citizens through taxation or prints it causing inflationary pressures. Deficits have to be repaid with interest. If injecting money into the economy is a plus, removing the same amount of money must be seen as an equal negative. Of course, the numbers never match up because it you have a loss in collecting the money and in distributing it. That means you end up injecting less money into the economy then you took out without yet dealing with the interest you will have to pay for going into deficit.

    ReplyDelete
  4. I think that the characterization of keynes and Hayek as polar opposites is odd, I think that in any discussion it makes sense to have your eye on coming to some sort of agreement, argueing for arguing's sake seems pretty pointless unless you want to join a debate club or something.

    You give a pretty conventional "real buiness cycle" critique of stimulus spending. The structure of "real business cycle" theory doesn't allow for the legitamacy of stimulus to boost aggregate demand, because this requires engaging the central coordinating mechanism in industrial economies- the government- which requires recognizing the political and social structures underlying any economy (anathema to "real business cycle" economic models and theories). instead this kind of approach views massive structural unemployment as a regular part of the business cycle (Hayek argued during the depression1 in 4 germans are unemployed because they are chooseing leisure) and doesn't agree that long term structural unemployment usually ends up being a threat to capitalistic systems, a harbringer of long term poor economic performance as well as soceital costs sunk that result from alot of people not being able to find work. This dovetails with the marxist critique of capitalism which posits that such a societal un-equalilty is endemic to these systems, therefore in Keyne's view dealing with problems resulting from stimulus such as inflationary pressure are in the long run preferable to deal with, and a check against the marxist critique.

    when you say: " The government can not pull money out of thin air. It either takes it from the citizens through taxation or prints it causing inflationary pressures. Deficits have to be repaid with interest." that is one hundred percent correct. which is why the type of stimulus is so important. tax cuts are a demonstrably weak form of stimulus. If my stepdad (a rich guy) gets a tax cut he may spend the extra money on something like a car (not likely we already have four) or use it to pay down more of my college tuition, however in the current economic climate the majority of the money gained in the tax cut will be saved, which on the aggregate level is not what you want when aggregate demand has bottomed out. Instead targeted stimulus that provides the means for a large base of individuals to invest themselves, combined with work on projects that increase the ease and flow of economic activity (highways are a standard example) which coordinates markets for when the ball gets rolling on economic activity is the surest way to shake off deficits in the long run. This results in the "keynes" multiplier effect of stim spending which generally disproves the real business cycle arguement you make: " If injecting money into the economy is a plus, removing the same amount of money must be seen as an equal negative. Of course, the numbers never match up because it you have a loss in collecting the money and in distributing it. That means you end up injecting less money into the economy then you took out without yet dealing with the interest you will have to pay for going into deficit."

    ReplyDelete
  5. a good example of this in action is the way the chinese government has responded to the crises- a large, but targeted stimulus on efficient/ clean energy projects and infrastructure construction combined with a tight leash on credit in order to keep inflationary pressure down. They are weathering the current economic storm while maintaing a growth rate of 9-10 percent a year, the best growth rate in the world. Given that this is occuring in China at the same time that for the last thirty years they have pursued an independent development strategy, protected infant industries, labor unions and so on. The U.S. comparably is now 2 percent and slowing, despite the fact that we should be in a much better position given our structural advantages. Instead we are in a position where since the finacilization of the U.S. economy thirty years ago, without an effective stimulus- what wall street can hope for now is that China loosens up credit and lets their economy boom at 40 percent growth a year. Of course they wont do that though, they are looking out for their own and would rather maintain a managable growth rate then deal with the impending bust the would result from an economy the size of china's hurtling towards such a crises.

    Personally I think the marxist critique of capitalism contains a pretty impressive catalog of ideas and predicitons for the paramaters capitalist development would take: The increasing concentration of economic power, the increasing fusion of economic and political power, the increasing intervention in the economy by the state on behalf of powerful private interests, the increasing need for private power to utilize the mechanisms of the state to engage in imperialism for cheaper labor markets and extractable resources, the ability of economic and political institutions to develop ideologies in order to keep contintually justifying their relative position of power to other individuals. Pure "real busines cycle" theory, when tried has only ever been implemented by force or without the consent of the public it was used on- the results have always been an excaerbation of the worst elements of marx’s predictions- not the best of them: the developlemt of new technologies for example

    ReplyDelete
  6. @Ian Spencer Dubrowsky - it is not about argument for argument sake, it is a realization that their is no point debating something you agree on. I think most people would agree that a pregnant 13 year old in this country is not optimal. One person thinks abstinence only programs are the best way to prevent it. Another thinks that teaching safe sex to kindergartners is the best approach. There is no point on them debating the merits of the pregnant 13 because they already agree. The point of a debate is to convince someone your side is correct; the 'debate' on the pregnancy is over before it begins.

    You missed the next step of your father saving money. That money goes into the bank, which is then loaned out to people and utilized. You also discount the speed of these processes. A tax cut is instantaneous and does not require a new massive bureaucracy. Your next pay check will have more money in it than it would have.

    'Successful past stimulus' assumes that the stimulus was not actually successful and the economy recovered in spite of it; which means the recovery would have been better and quicker had the stimulus not been implemented.

    ReplyDelete
  7. I havn't had access to a computer for a couple of days, but now that i do i can give you your daily politics bitch slapping ;)

    Its interesting the root of the word "convince" comes from a latin word meaning "to conquer". I think your idealization of debate presents a pretty austere view of human nature. If things worked like that in the real world then there would be no such thing as consensus, or shifts in opinion. have you ever realized you were wrong about something and had to reconsider why it was you were wrong? It probably wasn't because some other ill-defined "side" of an issue argued you into submission, you had to come to the realization yourself. At a certain point we make up our mind about what it is we want to believe, and even still there is a difference between the things people say and the things they actually believe.

    You missed the next step in your logic, which is that the banks already have plenty of supply in the current scenario. A loan, to start a business for example, is a long term investment that people do not want to make if they feel like there will be no customers to sell anything to. Thats a big part of the problem we are in now, we have socialized credit, but banks are not lending because no one wants to take out a loan and start something in an economy like this one. Even with Bofa paying back tarp, all it shows is that supply isn't the issue. Yet people very ideologically comitted to supply-side economics make those kind of arguments, which in the real world just end up benefitting the institutions that are wealthy and fine to begin with. The fed the other day slightly raised interest rates, and from the way markets reacted to that move- they will probably have to be lowered back to their historically low levels- the ones at which no one is still lending. Besides the money might not even go to a bank, but to a trust to collect interest for my inheritance- which I guess is fine except I don't know what being wealthy is going to do me in a neo-feudalistic society where the gap between rich and everyone else is already at its greatest level since the gilded age.

    a tax cut may be "faster" but im dubious about the validity of that argument. for one thing, to cut taxes does require bureaucracy- all organizations of men are bureaucracy, corporations are a bureaucracy. And the time spent for governmental actors to legislate tax cuts could just as well be used to come up with effective stimulus.

    For that not to be totaly logically incoherant, you would have to belive that every element of the business cycle moves like a stone machine. It clearly doesn't

    ReplyDelete
  8. I havn't had access to a computer for a couple of days, but now that i do i can give you your daily politics bitch slapping ;)

    Its interesting the root of the word "convince" comes from a latin word meaning "to conquer". I think your idealization of debate presents a pretty austere view of human nature. If things worked like that in the real world then there would be no such thing as consensus, or shifts in opinion. have you ever realized you were wrong about something and had to reconsider why it was you were wrong? It probably wasn't because some other ill-defined "side" of an issue argued you into submission, you had to come to the realization yourself. At a certain point we make up our mind about what it is we want to believe, and even still there is a difference between the things people say and the things they actually believe.

    You missed the next step in your logic, which is that the banks already have plenty of supply in the current scenario. A loan, to start a business for example, is a long term investment that people do not want to make if they feel like there will be no customers to sell anything to. Thats a big part of the problem we are in now, we have socialized credit, but banks are not lending because no one wants to take out a loan and start something in an economy like this one. Even with Bofa paying back tarp, all it shows is that supply isn't the issue. Yet people very ideologically comitted to supply-side economics make those kind of arguments, which in the real world just end up benefitting the institutions that are wealthy and fine to begin with. The fed the other day slightly raised interest rates, and from the way markets reacted to that move- they will probably have to be lowered back to their historically low levels- the ones at which no one is still lending. Besides the money might not even go to a bank, but to a trust to collect interest for my inheritance- which I guess is fine except I don't know what being wealthy is going to do me in a neo-feudalistic society where the gap between rich and everyone else is already at its greatest level since the gilded age.

    a tax cut may be "faster" but im dubious about the validity of that argument. for one thing, to cut taxes does require bureaucracy- all organizations of men are bureaucracy, corporations are a bureaucracy. And the time spent for governmental actors to legislate tax cuts could just as well be used to come up with effective stimulus.

    For that not to be totaly logically incoherant, you would have to belive that every element of the business cycle moves like a stone machine. It clearly doesn't

    ReplyDelete
  9. I havn't had access to a computer for a couple of days, but now that i do i can give you your daily politics bitch slapping ;)

    Its interesting the root of the word "convince" comes from a latin word meaning "to conquer". I think your idealization of debate presents a pretty austere view of human nature. If things worked like that in the real world then there would be no such thing as consensus, or shifts in opinion. have you ever realized you were wrong about something and had to reconsider why it was you were wrong? It probably wasn't because some other ill-defined "side" of an issue argued you into submission, you had to come to the realization yourself. At a certain point we make up our mind about what it is we want to believe, and even still there is a difference between the things people say and the things they actually believe.

    You missed the next step in your logic, which is that the banks already have plenty of supply in the current scenario. A loan, to start a business for example, is a long term investment that people do not want to make if they feel like there will be no customers to sell anything to. Thats a big part of the problem we are in now, we have socialized credit, but banks are not lending because no one wants to take out a loan and start something in an economy like this one. Even with Bofa paying back tarp, all it shows is that supply isn't the issue. Yet people very ideologically comitted to supply-side economics make those kind of arguments, which in the real world just end up benefitting the institutions that are wealthy and fine to begin with. The fed the other day slightly raised interest rates, and from the way markets reacted to that move- they will probably have to be lowered back to their historically low levels- the ones at which no one is still lending. Besides the money might not even go to a bank, but to a trust to collect interest for my inheritance- which I guess is fine except I don't know what being wealthy is going to do me in a neo-feudalistic society where the gap between rich and everyone else is already at its greatest level since the gilded age.

    a tax cut may be "faster" but im dubious about the validity of that argument. for one thing, to cut taxes does require bureaucracy- all organizations of men are bureaucracy, corporations are a bureaucracy. And the time spent for governmental actors to legislate tax cuts could just as well be used to come up with effective stimulus.

    For that not to be totaly logically incoherant, you would have to belive that every element of the business cycle moves like a stone machine. It clearly doesn't

    ReplyDelete
  10. @Ian Spencer Dubrowsky - I have been called worse then an idealist.

    I have been wrong in arguments, it does not happen often but does happen on occasion. Usually it is because I did not know some important piece of information or had not connected the right dots.

    Taxes require a bureaucracy; a lack of taxes does not. Telling those bureaucrats who are already collecting taxes to collect less is not even close to the equivalent of created a new bureaucracy to spend sums of money beyond the comprehensions of most.

    ReplyDelete
  11. You are an idealist, your one of the most intense idealists someone could be. Everything about you exists in your ideas and not any discernable experience as far as I can tell. You've been wrong in every substantial political conversation I have had with you because your about ideas and not reality. It leads you to really un-convincing idealized concepts. Like "the free market" is an idea, not really a reality. It sounds nice, but outside of the cocoon where the U.S. right wing gets its information, its not something taken very seriously and that's because theres no evidence for it.

    like here too, this is a good example. Maybe in the hypothetical bureaucracy in your head does "Telling those bureaucrats who are already collecting taxes to collect less is not even close to the equivalent of created a new bureaucracy to spend sums of money beyond the comprehensions of most." make sense. Because in reality (at least in the U.S.) is buearucrats collect taxes, you can tell them to collect more or less taxes, but unless you think the government should just be shut down cold, they are going to collect taxes and telling them to just collect less doesn't do anything to the size of the bureaucracy. Nor in present day reality is stimulus spending require a new bureaucracy, these bureaucracies that tell politicians what policies to do already exist, for example The Heritage Foundation is one such Bureaucracy.

    ReplyDelete
  12. @Ian Spencer Dubrowsky - "You've been wrong in every substantial political conversation I have had with you" -> that is some 'special' kind of memory you have their.

    You think I am an idealist because I believe in the free market? You keep talking about Marx, so what are you?

    You really believe telling people to do less (collect less taxes) requires the same sort of infrastructure increase as it would telling them to 'apropreatly' spend obscene amounts of money?

    The Heritage Foundation is not a bureaucracy because it is not the government, it is a private think tank.

    ReplyDelete
  13. I'm open to the possibilty that you are right about things, I just havn't seen very much evidence of that. Otherwise I think your projecting when you say im the one with the "special" memory.

    If you believe in the "free market" then yes you are an idealist, its not that I don't want to believe in a "free market" its just no ones given me enough evidence and I don't just believe in things because people tell me to. I'm an athiest for the same reason, its not because I don't want to believe in god its just there is not enough evidence. I've read alot of Hayek, rand, nozick and friedman and I think theres a tremendous gap between the theory and human practice. I see them as on the Hobbes side of the Locke vs Hobbes split. I think Hobbes was wrong, I think he and his intellectual heirs are part of an intellectual tradition in the west that says there is a great amount of injustice in society because of limits on what the powerful can do. Consequently these philosophical works always become incorporated into the ideologies justifying power structures that more often then not are illegitmate. In the United States this is called "libertarian" thought, although i don't actually think there is much really libertarian about it. I think it's an odd conception of human freedom that says freedom is the abililty to do whatever you want without consequences. Only in death, totalitarian dictatorship and scenarios of extreme wealth (like Michael Jackson) are people tottaly seperated from the bounds of human social life and reaction.

    I'm a Marxist, as much as that means to be someone influenced by Marx's work. I think im fairly familiar with it, I've taken graduate seminars on Marxism. I think the theory of historical materialism is more or less correct. Marx was influenced by German Idealism, he had ideas certainly, but he wasn't an Idealist. In fact it was his disagreements with what were regarded as the "right-wing hegalians" at the time, people saying things like the Prussian state is the realization of civilization, still contending God exists by virtue that people could argue passionately about it and so on that created the break between what was regarded at the Right-wing Hegalians, and the Left-wing Hegalians of which Marx was a part of and this philosohphical split still continues at universities. Either way I personally regard the Libertarian-Marxist tradition as the logical extension of enlightenment political thought in the 21st century context. However I'm highly sympthetic to the anarchist critique of Marx, like Bakunin's.

    If you want to characterize stimulus, which is a perfectly mainstream economic perscription by the way- not a marxist one- as "spending obscene amounts of money" you can definetly do that. Yes, telling the tax collecting buearucracy to collect more or less taxes does not do anything to the size of the bureaucracy, it will not then fire people because there are less people needed to collect taxes.

    The Heritage Foundation, Like Brookings, is part of the governing apparatus in the United States. Its is a policy organ of the state. Call it an extra-governmental bureaucracy if you want to. Think tanks are here in China too, except they are directly controlled by the government but are more or less autonomous to influence public policy, heritage is controlled by "private benefactors" (the people sho also control the government) in order to basically do the same thing.

    ReplyDelete
  14. @Ian Spencer Dubrowsky - freedom is not "the abililty to do whatever you want without consequences" it is freedom from unwarranted and unnecessary intrusions.

    Even if you think the government "will not then fire people because there are less people needed to collect taxes" that is still less bureaucracy over all then would be created to try and spend hundreds of billions of dollars.

    ReplyDelete
  15. yes I think that's an excellent definition of freedom. But recall your social contract theory, and you'll realize that humans by nature need at least one other person to care about them enough in order for them to even live, we are entirely dependent on other humans. We become human by imitating other humans, and our experiences are through and with other people. I can bitch that my mom calling me ten times a day is a "unwarranted and unnecessary intrusion" but an attack on my freedom? i'm not sure.

    I didn't realize "bureaucracy" is by definiton evil. maybe we should cut out the bureaucracys of the state that are "private" and therefore unnacountable to the public then

    ReplyDelete

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