John Papola and Russ Roberts' new Keynes v. Hayek video is up. It is very high quality and entertaining, like the last one. I have a few reservations about the content, though (also like the last one) - but it's still worth a watch.
First and foremost, is this really "the fight of the century"? The contrast between Keynes and Hayek just seems so artificial to me. I've always been a proponent of what's been called "Hayekian micro" and see no contradiction with Keynes on that front. In some ways, Hayekian micro is more consistent with Keynesianism than more traditional neoclassical micro. As for Hayekian macro, I've always thought there was something to that too (Keynes thought there was something to it as well), it just doesn't seem to provide a viable counter-argument to the liquidity preference theory of the interest rate, and therefore it doesn't displace Keynes. Keynes still provides the best view of the macroeconomy that we have, and I think Hayek provides a good treatment of a more specific process that probably also goes on. Of course, when we juxtapose Keynes and Hayek it's often a stand-in for the libertarian and non-libertarian strains of the classical liberal tradition. OK, fine. There is some conflict on that front. But they seem to be allies in the liberalism vs. fascism or liberalism vs. central planning fight. In economics itself their conflict doesn't really exist in any real way in micro (Keynes didn't weigh in there and there's nothing about Hayek's micro that contradicts Keynes), and their conflict in macro is fairly marginal compared to other macro fights (I know it doesn't seem this way from some corners of the blogosphere, but it really is).
Another issue with the video is that Keynes is referred to as "central planning", "top-down", "chessmen moved on a board at a whim", etc.. Oh please. If this is artistic license, then OK. As I said, I enjoyed the video and don't want readers here to get the impression that I'm disparaging it over what amounts to artistic license. The concern, though, is that people that are starting to get interested in these subjects and are relatively new to Keynes and Hayek are going to get a very skewed idea of Keynesianism.
A recurring problem in this video is that it distorts Keynesianism in much the same way that the first one did - namely, Keynesianism is reduced to "C+G+I=Y, so if we boost G we boost Y". This is exactly what you're supposed to learn that Keynes was not saying. John and Russ are confusing accounting identities with behavioral laws. They're confusing a static economy with a dynamic Keynesian economy. This is a very bad habit in economics. In the last video, we had the Austrian theory of the interest rate, but no Keynesian theory of the interest rate. In this video we have neither theory. So once again, John Papola gets hung up on this "you can spend on anything - it doesn't matter" issue. That sounds very strange if you think that Keynesianism is "if we boost G, we boost Y". It makes more sense when you realize it's about government note creation - Keynes's version of the helicopter drop.
Econometrics makes its way into this video as well, in some funny ways. First, I'm not sure why the Hayek character thinks that econometricians have a predisposition to Keynesianism. Any macroeconomic theory is going to have its cadre of econometricians and empirical evidence. Second, it's odd that Russ keeps making this claim about how unscientific this work is... we're still waiting for Russ's "Great Austerity Hoax" post about the Heritage analysis where two economists formerly affiliated with GMU use exactly the same models that stimulus advocates used!
Another thing that might be worth noting is that the Austrian inferiority complex comes out here, as in the last one. Hayek isn't recognized at the door again and gets a cavity search (the Hay-eksplosives line was great!), he loses in the end despite punching out Keynes, etc. This is all a little silly too. Hayek won a Nobel Prize. He's widely recognized as a towering figure in economics. He's not a marginal figure. Keynes is lionized too, of course - and for good reason. And he's not celebrated today despite being proven wrong. He's celebrated because most of what he predicted has been borne out by the data. We can note that you can squeeze Austrian theory into the data too if we are so inclined. Predictions about interest rates and inflation that Keynesians got right are a little embarassing for some Austrians, but you can make a case for them. But it's simply not true that Keynes has been knocked out here. John and Russ and many others want to ascribe Keynes's success to politicians - because apparently politicians love Keynes (you could have fooled me - I thought everyone's been trying to outdo each other on deficit reduction). Personally, I think it's more than a little condescending for John and Russ to keep repeating this sort of thing. Politicians get elected on promises to "rein in spending" - you don't see me going around saying that the only reason Hayek is having a revival is that politicians love him. I know that's condescending and I know that's simply not true, despite the apparent coincidence between what some politicians say and what Austrians say. That's not the reason why a large share of the profession is coming around to ideas they had rejected for decades in the case of Keynes or Hayek.
So in summation, it's a great video. It's always tough to talk critically about this or the last one because I do think there's a degree of artistic license and I do thoroughly enjoy the videos. But you have to be careful with these as well. I think people could really enjoy this if they come at it knowing something about the economics of Keynes and the economics of Hayek. But for less informed viewers, a lot of these videos can be extremely misleading. And the "central planning" lines, etc. are very unfortunate - even from an artistic license perspective. It makes me less interested in taking part int he discussion if that's what "the other side" thinks of me, and I'm sure I'm not alone. If you want to fight with a central planner over the pretense of knowledge go find a central planner, and stop wasting your time with Keynesians.
A few links that might be relevant:
- My first long post contrasting Keynesianism with consumptionism. My post taking Krugman to task for slipping into consumptionism. Taking Casey Mulligan to task for consumptionism (this is when I knew I was making an impression, because commenter Samuel Wonacott said he knew as soon as he read Mulligan's post that I would "jump all over it").
- This, I think, is an important post where I talk about why Keynesian "ditch digging" is more like Friedman's helicopter drop than it is like a public works program. This isn't to say public works are bad from a Keynesian perspective. We should just think of public works as "a helicopter drop where we get a bridge too" rather than "boosting G to boost Y". And this is just a fun post on helicopter drops.
- This is an old post on the prospect of a Keynesian-Austrian synthesis. Also here and here. I sketched out some of the math on this a couple weeks ago in response to a conversation at Coordination Problem where - again - commenters insisted on this false choice between Keynes and Hayek. I hope to finish that this fall. The posts above actually don't get into exactly what that entails - essentially I was working on an IS-LM models with a capital structure. Or, if you prefer, a capital structure model with a liquidity preference theory of the interest rate.
What are people's thoughts on the video? I want to draw people's attention to my new comment policy - I'm not going to put up with drive-bys anymore.
UPDATE: One more point I meant to mention on the substantial WWII segment in the video. I think the episode is suggestive, and it's suggestive in clear favor of Keynes - but it's very hard to make much of it because as Hayek says in the video, it's just one datapoint. However, one of the things that bothers me about this talk about WWII is the idea that all wars are all waste. I am always stunned that people talking about WWII from a Bastiatian angle are so loathe to note that keeping fascists from dominating Europe was a very, very good thing. War is hell. It's not something to be excited about. It causes lower standard of living at home. It does all these things. But Nazis are more hellish, and I wish people would do less insinuating about how the draft tinkers with unemployment figures and be more explicit about the fact that those soldiers were fighting for a free world.