Monday, October 13, 2008

Keynes vs. Hayek, The Final Round

This is it. Much of the last century has been a showcase of two divergent schools of thought in economics: Keynes and Hayek. Keynes ruled up until the late 70's. The Hayek school found believers in Thatcher and Reagan, but they were both compromised. At best a compromise was struck, with attempts at "supply side" economics that was close to Hayek's Austrian school, along with more Keynesian monetary policy.

Now we have the kind of financial implosion that Austrians have all said was an inevitable consequence of Keynesian monetary policy conducted by central banks. Governments have responded with extreme measures -- extreme Keynesian measures. Austrians aren't willing to say that this won't work, but do say it is only delaying an even worse fate.

The Austrians are smart folks, but they don't like to be measured and tested. They denounce any kind of objective, scientific measurement of their ideas. But they cannot avoid this one. This is it. If you are a follower of Hayek, then you must agree that we will see economic hardship on a grand scale within the next ten years or so. How grand? Again the Austrians will never give you numbers, but you gotta figure we're talking Great Depression kind scale. That would be 25% unemployment, western governments collapsing, democracy giving way to totalitarianism. If we don't have something like that in the next decade, just a run of the mill recession, then the Keynesians (and most of civilization) win.

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