There’s a video concerning some obscure but vitally important ideas in economics that’s getting a lot of play on YouTube. Titled “Fear the Boom and Bust” a Hayek vs. Keynes Rap Anthem, the video tells the story about two competing theories of how the world works — the theories of John Maynard Keynes and Friedrich A. Hayek. The ideas of Keynes have been vastly more popular in mainstream economics and politics and are embraced by President Obama and his advisors. This, of course, doesn’t necessarily mean that Keynes and his followers are correct.
The video has been viewed nearly 700,000 times. Jeffrey Tucker of the Ludwig von Mises Institute has dissected the video and concludes that it’s great:
A hearty word of congratulations to Russ Roberts and John Papola for putting all this together and providing a fantastic example of how economics can be communicated to every person. It was Mises’s own view that economics should not be relegated to the classrooms but should be part of the study of every citizen. Roberts and Papola have taken his injunction very seriously and done something wonderful for Hayek, for Austrian ideas, for economics in general, and for the intellectual progress of the world.
The presentation manages to squeeze in one of my favorite quotes of Hayek: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
The theories of Austrian economists such as Ludwig von Mises, Hayek, and Murray N. Rothbard are becoming more popular as their theories offer explanatory power that Keynesian theories can’t match. Here in Wichita, Austrian ideas were recently advanced to explain the nature of the unemployment in Wichita and what might lie ahead. Malcolm Harris, Professor of Finance at Friends University in Wichita, who blogs at Mammon Among Friends, appeared last Friday on the KPTS television public affairs program Kansas Week and presented an explanation of our current woes based on Austrian principles.
Harris said that today we have a “different kind of unemployment.” He explained that credit plays a crucial role in the business cycle, something that he said we don’t hear much about today: “An overexpansion of credit causes an overexpansion of activities that cause real trouble.” Cessna, he said built many airplanes in 2007 and 2008 because there was such a credit bubble, and Cessna produced planes to meet the demand the bubble generated.
But now the bubble is over and demand has fallen. This type of unemployment, Harris said, doesn’t get solved by a stimulus package. He said this is “Austrian” unemployment, because it was the Austrian economist Hayek who explained the importance of credit in the business cycle.
Roger Garrison of Auburn University has a Powerpoint presentation that explains the difference between Keynesian and Hayekian view of economics. You may need to download a Powerpoint viewer in order to use this presentation.