Transcript Grundzüge Mikroökonomik Arbeitsunterlage 4

Macroeconomics
Digression
© RAINER MAURER, Pforzheim
The Fight of the Century: Keynes vs. Hayek
Prof. Dr. Rainer Maurer
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© RAINER MAURER, Pforzheim
The Fight of the Century:
Keynes vs. Hayek
http://www.youtube.com/
watch?v=GTQnarzmTOc
&feature=relmfu
Prof. Dr. Rainer Maurer
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The effectiveness of anticyclical policy is hard to
evaluate based on simple
observations:
- Neoclassics can always argue
that despite anti-cyclical policy
things have not become good
enough.
© RAINER MAURER, Pforzheim
- Keynesians can always argue
that things would be worse
without anti-cyclical policy
Prof. Dr. Rainer Maurer
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The Second World War played
an important role in the
historical debate between
Keynes and Hayek:
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- The World Economic Crisis was
lasting much longer than Hayek
expected and was finally
overcome in Germany (and later
in other countries too) when the
government started military
spending programs.
Prof. Dr. Rainer Maurer
- The majority of economists
became therefore “Keynesians”
until Keynesian policy started to
fail in the 70s in the face of supply
side shocks. This epoch was a
kind of “ the return of Hayek”.
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A fundamental question: Can
an economy be steered like a
machine or is it too complex?
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- Keynes like Hayek rejected
central planning on the “microlevel” (telling firms what they have
to produce and households what
they have to consume).
Prof. Dr. Rainer Maurer
- But, contrary to Hayek, Keynes
hold government anti-cyclical
policy on the “macro-level”
(stimulating macroeconomic
aggregates like “consumption”,
“investment”, “net-exports”) to be
possible.
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The basic difference between
Hayek and Keynes:
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- Keynes hold recessions to be
the result of a reduction in
consumption or investment
propensity by the private sector “self-fulfilling expectations”
(Chapter 3.2).
Prof. Dr. Rainer Maurer
- Hayek hold recessions to be the
result of “overinvestment” booms
triggered by too expansionary
monetary policy (reduction of the
interest rate below the natural
interest rate (Chapter 2.2.1).
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The policy problem:
- Keynes is quite optimistic in
regard to the ability of politicians
to regulate the economy.
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- Hayek is very sceptic, expecting
“crony capitalism” and wrong
incentives (moral hazard), if
politicians have to much
discretionary leeway.
Prof. Dr. Rainer Maurer
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Rules vs discretion –
“German law and order” vs.
“Anglo-Saxon pragmatism”:
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- Given his optimistic evaluation of
politicians and his conviction that
market economies are unstable in
the short-run, Keynes believed in
discretionary macroeconomic
policy.
Prof. Dr. Rainer Maurer
- Given his sceptic view on
politicians and his conviction that
market economies – free of
government and central bank
interventions – are sufficiently
stable, Hayek believed in rules
effectively binding the hands of
politicians.
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© RAINER MAURER, Pforzheim
http://www.youtube.
com/watch?v=d0n
ERTFo-Sk
Prof. Dr. Rainer Maurer
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