posted without comment
We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No… it’s the animal spirits
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While Keynes did believe in animal spirits, much of the General Theory is actually compatible with a Rational Expectations model. Firms, rationally, anticipate low demand, do not invest, and their beliefs are consistent with the equilibrium.
It’s Hayek who has the more behavioral story. Interest rates are low–so what? They overbuild, unable to forecast the consequences a few years out?
Thorfinn
January 28, 2010 at 4:37 pm
This video became an instant classic on objectivist and libertarian message boards. It is a fair presentation of both theories, though, of course, weighted toward the rational-empiric model of Hayek, i.e., the one that actually works…
Never having read any of Hayek, myself, this video motivated me to click on some of the sidebar offerings. I found out that Hayek took Friedman to task for the quantity theory on the grounds that there are so many forms of money that we do no know what they all are. I heard Alan Greenspan say about the same thing about 2000 or 2001 in an NPR blurb. I am preparing an educational exhibit for numismatic conventions to demonstrate that point — which is known to all numismatists, actually. Just tracking the specialty clubs shows the evidence:
Token and Medal Society … Scripophilly Society … Conder Tokens… Civil War Tokens … Vecturists … Paper Money (of course)… Silver Art Bars … Philatelic-Numismatic (postage stamps as money) …
Some areas, such as bank drafts (checks) have no locus of their own but are found across several.
Michael E. Marotta
January 28, 2010 at 5:37 pm
There is an entertaining story on the making of this video from NPR’s Planet Money podcast. The makers of the video happened to get a review of it by pop-star Ke$ha.
mike3550
January 28, 2010 at 10:13 pm