Saturday, April 3, 2010

"Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem

I would like to give a big shout out to the creative minds that produced this video.

Here is the intro: In Fear the Boom and Bust, John Maynard Keynes and F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis. Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there's a "boom and bust" cycle in modern economies and good reason to fear it.

See the YouTube Video HERE!!

To aid the appreciation:
Hayek won the Nobel Prize in Economics in 1974 for his "pioneering work in the theory of money and economic fluctuations and penetrating analysis of the interdependence of economic, social and institutional phenomena." Most importantly, Hayek wanted government to provide limited takes and leave the rest to the free markets. He viewed the free price system, not as a conscious invention (that which is intentionally designed by man), but as spontaneous order, or what is referred to as "that which is the result of human action but not of human design". Thus, Hayek put the price mechanism on the same level as, for example, language. Finally, Hayek believed that government intervention distorted the price system that was required for sustainable economic growth. Reference

Keynes is credited with being the father of intervention. He advocated that governments, using fiscal and monetary policy, can smooth the business cycle. In times of recession, deficit financing by governments could increase aggregate demand and stem the worst of the bust. He thought this necessary since the full employment assumptions of free market theorists was a special case. He took the Great Depression as the case and point. Keynes never won a Nobel Prize because he died (1946) before the first price in economists was awarded (1969). Reference
What are the "animal spirits" Keynes speaks of: "Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits - a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities." (reference)

No comments: