The Rap on Keynes v. Hayek

Though I posted it, I didn’t comment on the Keynes v. Hayek rap video. I was first struck by the skew toward Hayek. He gets the final word as Keynes is hunched over a toilet paying for his excesses. That’s to be expected from Russ Roberts, one of the creators, who identifies himself as an Austrian economist, at least in part.

Mat Yglesias had a similar reaction and provides some details:

[I]t’s worth saying that this presents a somewhat oddly polarized view of the issue. The Hayek character presents what I think “real business cycle” types really think. But the Keynes character emphasizes as the sole alternative what are really the wackiest Keynesian suggestions (dig ditches, start wars) as remedies for the most severe possible problems. But the abstract idea that stabilization needs to emphasize creating stable nominal spending flows doesn’t normally involve any especially weird ideas. Nor does it normally involves any specific leftwing ideas.

The rappers have Keynes saying, for example, that he wants to “steer markets” whereas Hayek wants to “set them free.” Which is true to those two guys’ political perspectives. But 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.

Much of the hyped polarization of fiscal stimulus is due to a misunderstanding of the short- versus long-run views. It has been my impression that most economists believe that it is appropriate and wise to use debt-financed stimulus in the short-run and disagree over the role of debt in the long-run. Let’s ask Robert Frank:

The good news is that there is little disagreement among economists who have studied the issue. The consensus is that short-run deficits help end recessions, and that whether long-run deficits matter depends entirely on how government spends the borrowed money. If failure to borrow meant forgoing productive investments, bigger long-run deficits would actually be better than smaller ones.

Now maybe Roberts or Hayek would pick that apart and find some disagreement where Frank claims there is little. The rap video and most of the attention paid to the debt debate makes a muddle of things and fails to clarify where the point of contention really is. That’s not surprising, but it is a shame.

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