Dec 28 2009

Keynesian/Classical debate enters the realm of hip hop

Keynes vs. Hayek: Late Economists Hip-Hop Legacy | PBS NewsHour | Dec. 16, 2009 | PBS.

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).

2 responses so far

2 Responses to “Keynesian/Classical debate enters the realm of hip hop”

  1. Bjorn Kvaaleon 21 Jan 2010 at 10:15 pm

    The rap video was very intriguing and reflected upon the major Keynsian and Classical views. During our "great recessions", the Keynsian ideals have been used a great deal in order to push ourselves out of the recession. According to Keynes, in the long run we're all dead anyway. Although the Classical view may be correct and the market will self-correct itself, it might take much longer than it will with the extreme stimulus packages implemented by many governments. By increasing the government spending, the aggregate should be increased in theory. Take the USA for example. If the US had let the major car brands go bankrupt, it would have created a ripple effect that would have effected all of the suppliers of the major car brands in America. That way, many more people would have lost their jobs and made the recession even worse than it is now.

  2. Bjorn Bon 21 Jan 2010 at 11:10 pm

    Bjorn, I agree with what you said. Whilst I also understand that helping the banks does not punish them for having taken too many risks, I think it would be even worse to let these banks fall. Not only will we have thousands of jobless bank employees, but thousands of people would loose their hard earned money. Many people suggest that smaller healthy comanies, who simpy have an issue with cash flow (and cant get loans), could use this fiscal stimulus much more efficiently. Sadly however, the government has to turn us into statistics, and decide by judging which method will save the largest amount of jobs.

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