Keynes v Hayek
Speaker(s): Professor George Selgin, Professor Lord Skidelsky, Duncan Weldon, Dr Jamie Whyte
Recorded on 26 July 2011.
How do we get out of the financial mess we're in? Two of the great economic thinkers of the 20th century had sharply contrasting views: John Maynard Keynes believed that governments could create sustainable employment and growth. His contemporary and rival Friedrich Hayek believed that investments have to be based on real savings rather than fiscal stimulus or artificially low interest rates.
See also round 2 of the Keynes Hayek rap video:
The reemergence of Hayek in the public conscience in the past five years or so is quite remarkable. Austrian theory has been essentially considered a disproven deep fringe in the field of economics for a long, long time. It's also quite light mathematically. In contrast to neo-Keynesianism (which asserts that there is a lot of uncertainty and psychological factors in economics which can't be reliably quantified, but nevertheless relies on some mathematical models) or the neoclassical economics (which relies on math so much that it's routinely criticized for missing the reality behind equations), Austrian economics may be described without any formulas or plots at all. I'd say that it is an excellent demonstration of what happens when economics is done by high-V, low-M types.
ReplyDeleteOf course, the fact that basic tenets of Austrian theory (hard money, small government, no effort to regulate the business cycle) are being actively promoted in this country by the same people who deny evolution and global warming is also extremely telling.
The problem for the high-M's in economics is lack of global macro data points. "Without data, you are just another person with an opinion." It's a 10-year business cycle, each trough seems rather unique, and every 40 years or so we completely re-work the system.
ReplyDeleteOur senior-most economist can't even make a simple statement relating two scalars like "we'll spend $800 billion dollars in Keynesian stimulus and keep unemployment below 8%" and be right about it - so it becomes politics and not science.
I find it peculiar how it's easy today to give some theory that needs to explain very complex systems a status of scientific certainty.
ReplyDeletePaul Krugman for example likes to give your comparison of evolution, global warming and Keynesian economics the same scientific weight, as proven theories. Even every try to make any kind of debate on global warming or economics is followed with "oh... you believe in creative design, you're biased... scientific data says...." (of course, only the selected part of scientific data, the other is ignored as convenient).It's a huge mistake comparing evolution vs creative design and Keynes vs Hayek, or saying that models calculating climate change for next 50 years are good without any serious scientific uncertainty.While creative design is not a scientific theory, chaos theory is, and anyone who has made any physical model that is prone to chaotic behavior (and climate is) can't seriously claim that we can calculate the climate in next 50 years because we don't know all the parameters, how they interact and if we look at the history of climate, we see that it changes constantly and we don't know how and why.Putting neo-Keynesian economics next to theory of evolution is nothing more than politics and bad science. They say "we need stimulus and more government to get the economy running", economy falls , they explain "that happened because the stimulus was not high enough", they give another, then another ad hoc explanation. The fact is that we do not know how will it affect economics in the long run.When economy is down "we need government to spend money - create more government jobs for example", that's all nice, maybe true to some isolated subset, but what makes them think that you could reduce government as you please when the economy recovers? Look at Greece, they want to make cuts, people used to government jobs and limitless government spending don't. You can say "oh, the Greece was corrupted"... well that comes with the territory , the bigger the government, the bigger the chances of being corrupted, no body knows how exactly that happens and which populations are more/less prone to corruption. You can't look at economics without imputing the politics. Plotting graphs means nothing if you don't know all the relevant parameters and they haven't got a slightest idea except their wishful thinking.What I see in science today is that every major subject concerning the complex systems is politicized - long term consequences of global warming induced by humans, economics, social sciences (gender, race differences, job distributions, genetics, causes of violence, parenting....). We don't have the same criteria for evaluating the positions, it strongly depends is it inline with politics and the founding of scientific projects also depends on it. For example you can find 1000 tests that would show that one race has lower IQ than other, but if you find one test that says differently that would be taken as the "scientific consensus", the other view as "controversial", and you can say a 1000 times that it's not racism it's just data you'll end up like James Watson. On the other hand Paul Krugman can say that we need more stimulus 1000x and be wrong every time, as he usually is, we give him another try.Studding the complex systems is one of most interesting and most challenging tasks but also most prone to bad science, politicization and corruption.
Economics is a pseudoscience. If only economists knew that.
ReplyDeleteMy brother visted Zagreb. He said he felt lucky to get out with both kidneys. Would it be better had there never been the interruprion of Marxism?
"creative design" should be "intelligent design", btw.
And how successful could a quant fund be if it could make no more trades per year than BRK?
ReplyDelete@MtMoru - sorry, you're right, of course it's "intelligent design", I don't know how I've came to "creative".
ReplyDeleteAs for your brother visit to Zagreb, I'm sorry if he had bad experiences, but compared to any major European city it's one of the safest. For example there was never a case of stealing kidneys that I know of.
The difference is that population distribution is not as polarized as for example in US cities (but also more and more EU cities), while the probability to get hurt in one part of NY is much larger than in other, in Zagreb the probability is almost constant (you need to be at the wrong place at the wrong time) in any part of the town (except when there is a football game) and fortunately it's still quite low.
I don't have the data concerning the safety of Zagreb during communist regime, but the difference in that respect is that we are following west liberal philosophy and are very lenient towards violent people, worrying about their rights (and not the victims), spending more energy in trying to give explanation why the act was done, rather to try to remove such person from society.
As for economics side, our economy under communist regime was not sustainable, and our biggest problems today are still trying to centrally plan the economy, having a huge social state, too much regulation etc. I don't see these things changing any time soon as the current trend is having more state to solve peoples problems. We are actually following Paul Krugman and his theories, of course in some sciences it's more important what you think result should be rather than what they really are.
Sorry about of topic, I was answering the question.