Keynesian Economics vs Hayek's Austrian Business Cycle
Both, or Other
Here is a quick summary of the positions, but feel free to research your position before responding:
Following World War II, one major economic question dealt with the appropriate role for government in the economy. John Maynard Keynes, an English economist, developed theories that called for a large role for government in the economy. Daniel Yergin and Joseph Stanislaw (1998), explain Keynes' argument in this way: "The government would borrow money to spend on such things as public works; and that deficit spending, in turn, would create jobs and increase purchasing power. Striving to balance the government's budget during a slump would make things worse, not better. Keynes's analysis laid the basis for the field of macroeconomics, which treats the economy as a whole and focuses on government's use of fiscal policy--spending, deficits, and tax. These tools could be used to manage aggregate demand and thus ensure full employment. As a corollary, the government would cut back its spending during times of recovery and expansion." For more information about Keynes' ideas, read the two short paragraphs on Keynesian Economics
Keynes' views on economics were challenged by Friedrich von Hayek, who argued that "the problem was that under central planning, there Friedrich von Hayekwas no economic calculation--no way to make a rational decision to put this resource here or buy that good there, because there was no price system to weigh the alternatives." Central planners could make technical decisions but not economic ones. Over the rest of the century, that criticism would prove to be extraordinarily prescient. "Socialism shocked our generation," Hayek later said. Yet, he added, it profoundly altered the outlook of idealists returning from the war. "I know, for I was one of them.... Socialism told us that we had been looking for improvement in the wrong direction"(Stanislaw and Yergin 1998).
To Hayek, less government intervention meant more economic freedom. He believed that when people are free to choose, the economy runs more efficiently. In the United States, the strongest supporters of Hayek's ideas were a group of economists at the University of Chicago. Known as the "Chicago School of Economics," this loosely formed, unofficial group of economists was generally associated with free market libertarianism. The name refers to economists who received their schooling in the Economics Department at the University of Chicago. To date, nearly half of all Nobel Prizes in Economics have been won by researchers with ties to Chicago.(Left this in because its my home town)
This was taken from http://www.econedlink.org/lesson/593 and I find it a good launch point of our discussion. Please feel free to add any information with sources. I will add them if they are relevant.
Update 2/10 We have a three-way tie.
I have an opinion on Keynes and plan to share it. However, I don't understand this explanation of Hayek.
In particular the sentence [i]"the problem was that under central planning, there Friedrich von Hayekwas no economic calculation"[/i]. This is just one big grammatical error. :) Furthermore the two views do not seem comparable -- Hayek seems to be critiquing socialism but Keynes is not advocating socialism.
The simplicity/clarity of the Austrian school amazes me. I have yet to find a situation in which the outcome cannot be explained by a combination of supply/demand and interest rates. Every time Ron Paul answers a question in regards to economics the reaction typically is "wow, that makes total sense".