The Rise of F.A. Hayek

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” - John Maynard Keynes

With the election of Barack Obama and large majorities in the Congress, many commentators were playing up the resurgence of Keynesian economic theories.

In reality, George W. Bush was a Keynesian. As Bruce Bartlett has pointed out, the 2001 and 2003 tax cuts were passed under the guise of “stimulating the economy,” and the deficits were certainly there not too long after the cuts passed (and they’ve stayed with us). And certainly the bailouts were driven by that same misguided belief that government could “rescue” by spending taxpayer dollars.

But as there is increased skepticism on the Federal Reserve and the Keynesian-style economic policies advanced by the Obama Administration, it seems that the demise of the free market has been greatly exaggerated.

Even Newsweek, which last year declared that “we are all socialists now,” is noting the rise of the Austrian economic views of Friedrich Hayek, the Nobel Prize winning economist:

In a sign of the times, some of the most popular videos on YouTube this year are satires on economic policy; the latest lampoons the Fed amid a growing feeling that policymakers are committing what economist Friedrich Hayek called the “fatal conceit” in micromanaging the economic cycle. Hayek hated policy intervention of any kind. Keynes, Friedman, and Hayek were leading lights of the three most influential schools of economic thought of the last century. Hayek was associated with the Austrian school, ascendant in the 19th and early 20th centuries, which argued that the private sector should be left free to carry out the task of any readjustment in a downturn. Faith in the market’s purging power served the U.S. well in the 19th century, when the economy emerged stronger after each recession, but was taken too far in the policy mix of tight money and high taxes that led to the Great Depression and the rise of the Keynesians.

Keynesianism and monetarism are now suffering a similar distortion. Keynes would probably never have supported big government deficits during boom times, such as those that led to our current debt crisis. Likewise, Friedman would probably not have backed the new Fed use of monetary policy as a tool to engineer expansion rather than merely cushion the pain in a downturn.

Keynesianism and monetarism are now suffering a similar distortion. Keynes would probably never have supported big government deficits during boom times, such as those that led to our current debt crisis. Likewise, Friedman would probably not have backed the new Fed use of monetary policy as a tool to engineer expansion rather than merely cushion the pain in a downturn.

The systematic perversion of Keynes’s and Friedman’s thought is now resulting in a fall in their fortunes, leaving Hayek triumphant, once again.

One of the videos that received a lot of attention was put together by EconStories, the brainchild of Russ Roberts and John Popola. “Fear the Boom and Bust” put the decades long debate between the Austrian school (Hayek) and Keynesian school into song:


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