The Argument Never Ends

Keynes versus Hayek. Of course, it’s never an argument about how best to revive an economy — it’s an argument about how to either maximize government power, or to liberate the people from an overspending, overtaxing tyrant.

[Update a few minutes later]

Lynne Kiesling has more thoughts:

This theme of “economic control becomes political control” is crucial to making sense of the corporatist nature of political activity, and why regulation is so pernicious for individual well-being and liberty.

Hayek is, if not one of the first to make this connection, certainly the most prominent early proponent.

20 thoughts on “The Argument Never Ends”

  1. “Of course, it’s never an argument about how best to revive an economy — it’s an argument about how to either maximize government power, or to liberate the people from an overspending, overtaxing tyrant.”

    Indeed. If I knew nothing about economics, given the choice between trusting economist A (a State-shtupper who basically thinks all my money and time belong to him and his gang, to use as they please) or economist B (who respects my freedom and basically wants to leave me alone), I’d always be inclined to trust B.

    It’s sort of an extension of the bumper-sticker, “If you want to disarm me, why would I trust you?” expanded beyond Second Amendment rights to include economic liberty as well.

  2. The letter signed by Hayek agrees that hoarding money (savings?) is deflationary and was not be be encouraged in 1932.

    The letter signed by Hayek opposed excessive public spending due to fears of rising interest rates suppressing private investment however today interest rates are remarkably low (1 month LIBOR at 0.35%)

    The letter signed by Hayek advocated spending on infrastructure (which today would be repairing our roads, bridges, power grids, sewer systems and the like). Broadband infrastructure would seem a valuable investment, for example.

    That said, for better and for worse the US economy currently depends upon consumer spending. Curtail consumer spending and the overall economy contracts, adding to deflation.

  3. “The letter signed by Hayek agrees that hoarding money (savings?) is deflationary and was not be be encouraged in 1932. ”

    With the current rapacious gang in power in Washington, I get the feeling that private individuals “hoarding” their money isn’t going to be all that much of a problem.

  4. Broadband infrastructure would seem a valuable investment, for example.

    Yep, moar pr0n, plz!

  5. That said, for better and for worse the US economy currently depends upon consumer spending.

    This is sort of a fallacy.

    Our economy depends on wealth creation. Period. How we spend it is a choice, and one our economy is currently organized around, but it is not the only choice.

    There is no alternative to wealth creation however.

  6. “There is no alternative to wealth creation however.”

    This is why socialism always comes a-cropper. Or as Margaret Thatcher said, eventually you run out of money to redistribute.

    Unless you print it, of course! Wheeee–ObamaBucks for everyone!

  7. That said, for better and for worse the US economy currently depends upon consumer spending. Curtail consumer spending and the overall economy contracts, adding to deflation.

    And what happens to consumer spending when tax increases leave people with less money to spend, as will happen next January 1st?

  8. Bill, back in 1932 there was not a FDIC and there were in fact people hoarding money under their mattresses where it was not doing any good. Now days people don’t generally keep large sums of cash hiding in their freezer (unless they are a senator) and instead keep it stored in saving accounts or other investment instruments. Money sitting in a savings account is still being spent by the banks and is contributing to economic growth as a whole.

  9. Its also a debate deeply rooted in 20th Century philosophy and economic theories. One silver lining of this new recession/depression is that both will start to be replaced with “Complexity Economics” which does focus on wealth creation.

    Eric D. Beinhocker’s book, “Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics” is a good guide to the road beyond 20th Century economics.

    Pity there is always a 20-30 year lag between the cutting edge of economic theories and those making economic policy…

  10. “Eric D. Beinhocker’s book, ‘Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics’ is a good guide to the road beyond 20th Century economics.”

    Bottom line it for me: is that a road toward greater liberty and less statism, or more statism and less liberty?

  11. Bilwick1, how dare you bring-up political realities (like asking whom the road will be paved over) in the face of shiny new economic theories! Look — shiny!

  12. “Greater wealth leads to greater liberty.”

    Not really, if the State expropriates it.

  13. Bilwick1

    Funny thing. The richer folks get, the madder they tend to be about the state taking it.

  14. I think a litmus test for whether the government should stimulate the economy might be whether the government can get a better ROI than the private sector.

    Another thought; in an efficient market the private sector will self stimulate if it deems doing so sensible – to get through a bad season, etc. If the market has assessed that stimulation and going into debt is not the best course of action, then perhaps the government should do likewise. If I am not mistaken, the private sector jumped on the austerity wagon at close to the outset, what did they know that the government did not?

  15. “Funny thing. The richer folks get, the madder they tend to be about the state taking it.”

    Really? Hang out with a lot of rich people, do you? Or did you take a pol?

    And even if you’re correct, that would prove the point of your cryptic (and dubious, to the extent it’s intelligible) “Greater wealth* brings greater liberty”–how?

    Anyone clearer-thinking than this guy figure out what he’s talking about?

    *Whose?

  16. And even if you’re correct, that would prove the point of your cryptic (and dubious, to the extent it’s intelligible) “Greater wealth* brings greater liberty”–how?

    To illustrate how complex “complexity economics” is! See, old-fashioned “20th century economics” would say that liberty leads to greater wealth. But just turn it around and voila! Complex!

  17. Angus Maddison, showed in his classic work “The World Economy: a millenial perspective” based on a thousand years of actual economic data(versus philosophical theories…) that increases in wealth always proceeded increases in democracy (liberty).

    The reason is simple, a starving peasant is too busy worrying about where his next meal is coming from to care about voting and governance. Its only when he has wealth and security that he starts looking further into the future.

    Consider England. The Magna Carta wasn’t for the peasants, it was for the benefit of the English Lords. But as each social class gained more wealth (traders, craftsmen, farmers) they also gained more political power, power that lead to more liberty. In the U.S. Colonies that average subject (other then slaves) had more wealth then their counterparts in England, and so expected more say in the government. And got it in the Constitution.

    Really, it’s a simple relationship, as a society gets more wealthy the trend is towards more democracy.

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