Jonathan Chait

Keynes Vs. Hayek, The False Debate

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The right-wing Mercatus Center has another, wildly popular Keynes vs. Hayek rap. David Frum notices the moment when it slides right past the central issue:

The conservative insistence on pretending that central planning is the issue has rendered conservatism mute and useless (when not actively counter-productive) on the actual burning question of the day: How do we recover most rapidly from the worst economic calamity to hit the US since World War II?

To this, the modern Keynesians have an answer. To this, the modern self-described Hayekians don’t. And one of the fascinating sub-themes of the two Keynes-Hayek raps is the way they obscure the modern self-described Hayekians’ lack of an answer to Keynes’ urgent question.

Thus for example, from Round 2:

KEYNES

so what would you do to help those unemployed?

this is the question you seem to avoid

when we’re in a mess, would you just have us wait?

Doing nothing until markets equil-i-brate?

HAYEK

I don’t want to do nothing, there’s plenty to do

The question I ponder is who plans for who?

Do I plan for myself or leave it to you?

I want plans by the many and not by the few.

Look what’s happened here: Keynes ask Hayek what he would do. Hayek says, “there’s plenty to do” – and then immediately switches back to a highly generalized discussion of central planning.

Hayek was a forceful and persuasive critic of central planning. But Keynesian fiscal policy is not about central planning, or even an argument for larger  government at all. It's an argument for counter-cyclical budget policy, with higher deficits during severe recessions, and surpluses to pay off those deficits during sustained expansions. This policy is perfectly compatible with any level of government and does not require higher aggregate levels of debt than maintaining a regular balanced budget.

The conservative insistence on viewing stimulus spending to counter the most dire economic crisis in seventy years is one of the many pathologies that have overtaken conservative thought. I think several things are at work. First, the Bush administration's profligacy left structural deficits that mushroomed to huge levels when the economy slowed, causing many conservatives to mistakenly associate the long-term growth  debt with temporary stimulus. Second, the Obama presidency, which really did have long-term ambitions to reshape policy on climate change and health care, and which was ushered in on the shoulders of what may be a slowly more liberal electorate, raised fears of a long-term leftward shift. Conservatives failed to distinguish this, too, from temporary stimulus to fight the recession. And third, conservatives recognized that poor economic performance offered their best chance to regain power, and this made them more receptive to do-nothing arguments that neither party had paid attention to for decades.

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