Keynes vs. Hayek, Round 2

I like how at the end Keynes is pulled up to his feet and declared the victor (no matter how obvious a failure, the corrupt system keeps applying his theories). Then the Washington mandarins, Wall Street bigwigs and press all gather around him while the nerds come to congratulate Hayek. The press often implies that the Wall Street crowd loves Hayek and laissez-faire (“unrestrained markets” and all that), when in reality the moneyed political players support intervention since they are successful rent seekers and bailout recipients.

The key point that well-intentioned supporters of government (like most everyone in Europe) often miss is summed up in this phrase from Hayek:

“With political incentives, discretion’s a joke.
Those dials they’re twisting, just mirrors and smoke.”

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For those who haven’t seen it, this is the first video:

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And the real Hayek on Keynes:

Rap battle: Keynes vs. Hayek

Watch for Tim and Ben as the bartenders.

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Hit tip to Kevin Duffy.

Lyrics (from econstories.tv):

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
Prepared 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

A pledge against the state

The production here is a little cheesy, but the principles expressed make for a refreshing contrast to that creepy video of Hollywood airheads for Obama.

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If it weren’t for the internet, this whole constitution movement would never have formed. The demographics in the US are unsupportive of it, to say the least, but it is a very healthy thing. The entirety of the landmass south of Canada and north of Mexico won’t always be ruled by the gang of thieves in DC, and these principles can be put to use on a smaller scale or in another place and time altogether.

Despite the sentiments of its current rulers and the booboisie, I don’t know of any other place that has such a well-defined culture of liberty as the US. Certainly not the UK anymore, nor anywhere else in the Commonwealth. Europe never really had one, aside from Switzerland, nor did Asia. The US carries the flame — its constitution may now be ignored, but it does serve as a rallying point and touchstone.

How many people are there, like that girl, who don’t trust the facts as presented by the big news companies? There is such a divide now between those who are thinking for themselves and those, however intelligent they may be, who think within the sphere of discourse as acceptable in the newspapers. There is the BS in USA Today and the BS on Slate.com – different BS for different IQs, but all from the same animal.