I used my notes and the Keynes versus Hayek music video as part of our reading this week. As usual, half the class tried skipping directly to the video, but it became pretty clear, as I suspected it would, that they didn’t understand what was going on if they had not read the notes.
We’ll be discussing the video tomorrow when we try to wrap up the week’s work, but, as one student mentioned, it can be a little hard to figure out the words in the rap. Fortunately, the Econ Stories website has been updated to include the lyrics.
Even without the lyrics, however, I really like that you can get a good idea about the competing economic theories solely from the video itself, since it’s just a very detailed extended metaphor. It’s so chock full of symbols that it could probably be used to supplement the Calvin and Hobbes comic strip in our language lessons on finding symbols in texts.
With a national unemployment rate of 10%, most students are aware of the current recession. When they ask about what the government is doing about it, the answer is that they’re following the advice of a man who died over 60 years ago, John Maynard Keynes.
Keynes wrote the textbook on how to manage economies, particularly in response to recessions. If the economy is in a recession because people are not spending money, then his solution was for the government to spend the money instead. Friedrich Hayek, however, disagreed.
Hayek’s disagreement with Keynes is a disagreement about human nature. This is after all what economics is all about, how people behave. Hayek though that recessions are necessary for economies and societies adjust to changes. Economies go into recession because as things change, such as technology, some businesses will fail because their products are no longer necessary. Eventually new companies and industries will replace these, but as that transition occurs, there will be the general hardship of a recession.
So, if the government spends money to support the economy all it’s doing is preventing necessary change, which means that in the long run, the economy will be worse off than if the government just let the change occur. Necessary adjustments will have to occur sooner or later.
The thing which is most needed to secure healthy conditions is the most speedy and complete adaptation possible of the structure of production. – F. Hayek
Even today are ongoing arguments either way. The government, specifically the heads of the Federal Reserve and the department of the treasury, Ben Bernanke and Tim Gethner, is dealing with the current recession by following Keynes’ prescription. They are adding more money to the economy. Other economists disagree.
The video illustrates the differences between Hayek’s and Keynes’ view of the economy using a music video and a rap. It is a wonderful example of how serious issues (and you can see the sincerity of the creators) can be explained in a way that catches the attention. I like how the authors give the same message in two modes: the words explain the concepts and the video illustrate them (look out for Tim and Ben).