A recent discussion in comments reminded me of this piece from a while back that I never posted. There were a couple of good points in it.
The problem with the Hayekian position is that it’s relentlessly negative: spending doesn’t work, stimulus doesn’t work, all we can do is suffer a nasty bout of deflation and trust in the invisible hand to eventually get us back to work again.
Right. Then, there was this highly familiar point...
For the Hayekians, the Manhattan Institute’s Diana Furchtgott-Roth was particularly revealing: she would take a question about rescuing the financial system and duck it by talking about how rescuing the auto industry was a bad idea. Or she would ridicule high-speed rail by saying that no one wants to take the train from New York to L.A.—a route that precisely no one is proposing. In other words, the Hayekians were more comfortable with straw men than with messy reality.
Pretty much sums up every discussion I've every had with these sorts of folks.
But I remembered that the main reason why I didn't is that is seemed far too bipolar. The answer isn't always simply "Keynes" or "Hayek." In fact, in the current age of globalization, neither fully apply. I've always been one to take a more constructivist approach to any issue of the day. New ideas that are people driven, not "school of thought" driven. For example, both liberalism and realism completely failed to predict the collapse of the Soviet Union. They didn't figure that Gorbachev would simply give up and call it a day. Is there an economist out there or world leader who will finally leave behind both Keynsian economics as well as the theories of Friedrich Hayek? In my view, it's long overdue. How does one stimulate aggregate demand when we have a world economy? This implies that all of the world's governments would have to act in concert to achieve this end and, given the reality of the international stage and conflicting interests, this hardly seems likely.
And there are far too many misconceptions about John Maynard Keynes that have sadly taken root. The thing that people forget about Keynes is that only called for increased government spending in times of contraction. When economies were doing well, he did call for austerity and reduced spending. The anti-spending anaphylactics tend to forget that. These same people also forget that Ronald Reagan was a Keynsian by both cutting taxes (which increases aggregate demand) and increasing spending. "I'm not worried about the deficit. It's big enough to take care of itself," he once quipped. Richard Nixon famously said, "We are all Keynsians now" and, to a certain extent, he was right.
My biggest beef with Hayekians is that can't point to a real world example of how his theories work in practice. Like the libertarian fantasists, where was the utopia of which they dream? How would it work today, given globalization? Certainly, they can point to austerity measures taken during boom times but that's honestly Keynes, not Hayek. The reality is Hayekians just don't like the government. Their emotions about it have clouded their judgment and inhibited them from seeing that different circumstances dictate different paths of solutions.
Sometimes you can't plug a square peg into a round hole. Shocking, I know!