Dec 28 2009
A major theme of both the AP and IB Economics courses is the long-running debate between the Keynesian, demand-side theories of macroeconomic policy and those of the Classical, supply-side school. Today’s “Great Recession” has revived this debate, which itself dates back to the Great Depression of the 1930’s, when an Englishman and an Austrian could be found at the ideological centers of two different philosophies of the role government should play in the macroeconomy.
John Maynard Keynes and Friedrich Hayek were close friends whose views on government’s role differed greatly. Hayek was a classical, laissez faire libertarian who believed that any intervention by government in a nation’s economy disrupted the efficient functioning of the free market and threatened to stifle private enterprise. Keynes, the father, of course, of modern Keynesian economics, believed that free markets left unchecked were vulnerable to the volotile animal spirits of investors and speculators whose often irrational behaviors could create externalities such as unemployment and credit crunches, thereby harming society as a whole.
Paul Solman of PBS (who I recently met at an Economics teachers conference in Washington DC) interviews a modern Keynesian, Robert Skidelsky (Keynes’ biographer) and a neo-classical economist, Russ Roberts (who I also recently met in Richmond, VA).