“Fear the Boom and Bust”: Hayek vs. Keynes Economics Rap

Ever heard the term “Keynesian economics” and wanted to learn more? Here’s a new rap video that explores the competing theories from the Austrian business cycles of Friedrich von Hayek and the interventionist theories of John Maynard Keynes. Yes, I said rap… and it’s actually pretty good! I like the quotes at the end.

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

Full lyrics and song download available at EconStories.tv. Via NPR, thanks to reader Tim.


  1. Except Keynes theory is wrong. Government spending does not get us out of recession/depression. Read Sowell. He’ll explain real-life economic to you.

    • Joseph Richey says:

      If Keynes theory is wrong then, how did we get out of the great depression during World War II? The answer is that the government spent a lot of money on in and the great depression ended.

  2. If people want to actually learn about Keynesianism and Austrian Economics, there is a plethora of information, articles, books, etc., all available for free at the Mises institute’s website at mises.org.

  3. This is a false choice. I agree mostly with Austrian, laissez-faire, savings or spending, whatever people what to do. But Austrians tend to want a return to the gold standard, bad idea. I believe the Fed has done mostly good, but they should be more beholden to a rule to choose the interest rate. I follow the “Friedman school,” he thought the Fed could be best replaced by a computer.

    By the way, the video was great. I especially liked the bartenders “Ben” and “Tim” constantly giving Kaynes shots of monetary “stimulus,” awesome.

  4. Keynesianism was popular because 1) it was a brand new “alternative” view of economy back in the early 20th century and 2) it’s not hard to understand to the mess. I just felt that we just have way too many self-claimed smartasses out there claiming this is right or that is wrong. The more abandonment you are about something, the more likely you are full of yourself.

  5. The problem with Hayek’s theory is his prescription for how to end the bust doesn’t correct severe downturns in the economy, and it assumes that government intervention in the form of deficit spending will necessarily lead to wasteful capital investments. Keynesian interventions don’t necessarily need to be wasteful. Funding the war efforts of World War II, and public works projects in the 1930’s such as the Tennessee Valley Authority helped to drive the economy forward. The New Deal projects coupled with funding the war efforts were by far the largest government market interventions the US had ever known to that point. According to Hayek, this should have laid the groundwork for another severe recession or depression, yet it didn’t.

    Before Keynesian theories were applied, there were numerous Great Depression rivaling drops in the economy, such as in 1907. Since the Great Depression, over a span of 50+ years, we haven’t had anywhere near the downward turn in the economy. The recession we’re experiencing now is arguably the worst, and yet we only have just over 10% unemployment.

    Hayek’s theories also neglect that we were having Great Depression rivaling downturns well before the US government of the Fed had effective means to regulate interest rates or the money supply. After finally establishing the tools for the Fed to do this, our economy has been comparatively been far more stable, and it is because of these interventions. How can his theories be right if we have had a far more stable economy once the government began regulating interest rates and the money supply?

  6. NPR’s “Planet Money” did a story about how this all came together. From their site:

    “We bring you a story about a cable tv producer from New Jersey, a podcasting libertarian economist, an international pop superstar and the two dead economists who brought them all together.”

    A very good listen. Available at:


  7. sure, keynesian economics is the answer. that why the purchasing power of the dollar has declined 90% over the last 80 years, federal debt has exploded, and the economy just goes from one asset bubble to the next.

    80% of the money collected by the government for spending programs is spent before it ever get to its intended destination.

  8. Joe,

    Your argument is specious. It implies that, under different conditions, we would all be 10x richer. Even though the “purchasing power” may decrease over time, we also make more money over time. Our incomes have increased faster than the decrease in purchasing power, which is why we’re living much more comfortable lives than those in the 1920’s. We invest our money in saving accounts and stocks to keep up with inflation. If the money supply wasn’t increased with the size of the economy we would have much bigger problems than a small drop in the purchasing power of each individual dollar every year.

  9. mike-

    well, why not print enough money to make every citizen a millionaire then? like zimbabwe?

    happen to notice the number of asset bubbles created over the last 10 years?

    and if inflation was -20% over the last 10 years, then you might have broke even if you invested in the stock market. lol.

  10. Joe,

    Keynesian economics in fact is the answer. I’m very sympathetic to the argument that deficit spending can be done poorly. That’s exactly what we got when the federal government kept interest rates low, deficit spent at levels never seen before that time, and effectively printed money to finance the war in Iraq in the last ten years. However, there are reasons beyond this being a simple Keynesian intervention that made it such a poor policy:

    1. You don’t deficit spend at record levels to end a recession that was one of the lightest recessions in US history (the post 9/11 recession.
    2. You don’t continue to deficit spend well after the recession has ended. In fact, you should have periods of surplus to help pay for the periods of deficits.
    3. You don’t simply print money to finance large government projects. Even in World War II, there was a large patriotic movement to buy war bonds.
    4. You don’t keep interest rates low during record economic growth.
    5. You don’t keep a blind eye towards shady mortgages given to those who truly can’t afford them.
    6. You don’t end vitally needed regulations like Glass Steagall.

    However, it’s historically proven that severe downturns in the economy have to be corrected with deficit spending and other interventions, but I will agree that there are risks if done improperly. It must be done correctly. But you shouldn’t take away or avoid using a tool just because at times the tool caused more harm than good. The reality is the US economy has never been as stable in its history than it has been in the last 60 years, and the last 60 years the US has followed a far more Keynesian approach that it ever had before. It’s not by any means perfect, but it does work. Perhaps it’s time to refine or tweak it to prevent the bubbles from forming.

  11. Sure managing the money supply has kept things smoother economically in recent history, but I think some side effects are only beginning to be felt. Low interests rates have pushed asset prices up hugely and led us to collectively borrow huge sums both privately and publicly. Take a look at some of these charts to see how much of our consumption has been borrowed:

    I think both monetary and fiscal stimulus can be useful in extreme situations but require discipline. In different ways, they are the macro equivalent of ‘bill me later’, which of course is why no politician (and few voters) can resist them.

  12. yes a keynsian or socialist’s favorite answer is “it wasn’t done right.”

    it wasn’t done right in germany, japan, in the usa in the 1930’s, zimbabwe, etc., etc. lol.

    80% of government spending is government waste.

    tax cuts, less regulation are far more efficient.

  13. Joe,

    We had low taxes and less regulation, and a mostly free market leading up to the Great Depression. It failed, pure and simple. There’s no dispute that our economy since that time has been more healthy, prosperous, and stable. As bad as wasteful government spending can be, it beats wild swings in the economy. Proportionately, we haven’t had anywhere near the economic crashes like we had in 1929 or 1907 since we’ve switched to a Keynesian model. You’re welcome to argue capitalism then “wasn’t done right”, too, but I’ll take today’s downturn over the Great Depression anytime.

    And let’s be clear, a Keynesian model doesn’t necessarily mean you’re a socialist. It simply means you at least subscribe to the idea that the free market system isn’t perfect, so at least to some degree a mixed system is best. I subscribe to the Keynesian model, but I’m no socialist. I believe a mixed approach that relies on the market as much as possible, and the government should only intervene when market forces fail, which they clearly do during downturns in the business cycle, in certain industries, or ensuring a basic level of quality in goods and services must be met that benefit the common good. But I believe the market system works the vast majority of the time.

  14. some would argue the federal reserve had a role in causing the great depression, and government spending only prolonged it.

    booms and busts are a natural part of the business cycle. prior to the creation of the federal reserve they were severe but also very quick.

    government stimulus has been proven to be inefficient, and reulted massive deficits.

    but, i guess my question would be, now that the country has massive deficits, does this keynesian stimiulus ever stop?


  15. BTW, the video was linked to on NPR, but the blog likely of interest to those here is this one:

    For those arguing for/against Keynes & the Austrians, I think we’re missing the point here. They are both wrong and right in their own ways. They’re basically just the current extremes.

    Both strategies have “failed” at various points in time. It’s obvious that the recent US money printing session is going to cost lots of people their expected retirements plans. But it’s also going to allow at least some larger portion of new grads to get a job.

    Obviously, this has likewise been a bad decade to be a saver b/c inflation has been beating things like interest and stock market returns.

    At the end of the day, we clearly need savings and investment continue growing, but it really helps to have some deficit spending to smooth out the rough patches. The US is in year 11 or so of deficit spending, which is obviously a lot more than just a “rough patch”.

    It doesn’t mean that Keynes or Hayek were truly right. Honestly, I think the 11-year “rough patch” points to a lot of underlying real problems having very little to do with whether or not the government is printing money.

  16. Aaron,

    In the 1920s we also had below market interest rates encouraging over borrowing and buying on margin. The low interest rates were to spur economic development, but that action is often pro-cyclical and encourages boom/bust over a steadier path.
    “I believe a mixed approach that relies on the market as much as possible, and the government should only intervene when market forces fail, which they clearly do during downturns in the business cycle”

    Or maybe the booms and ensuing busts are just as much government interventions fault as you think government non-intervention should.

    “Proportionately, we haven’t had anywhere near the economic crashes like we had in 1929 or 1907 since we’ve switched to a Keynesian model.”

    Was the 2008 crash really that much better than 1907? By many metrics you could say it was worse. What make you think it was better?

  17. Aaron, have you read America’s Great Depression by Murray Rothbard. I’m going to guess you haven’t since you believe we had a largely free market that failed in 1929. Inflationary central banking laid the groundwork for it, and the bubble only burst in the spring of 1929 (before the stock market crash) when the printing press stopped.

    The dreaded business cycle in the United States has gotten sharper since the inception of the Federal Reserve. No one can look at history and flatly deny that. While correlation does not equal causation, there are very legitimate reasons to believe that inflationary policies distort the structure of capital by artificially changing interest rates from their equilibrium. One of the downfalls of Keynes (and Friedman) was their notion that capital is only fixed in the short run. Realistically, capital is fixed in the medium run. Homogeneity of capital is a drastically unrealistic assumption, and when you put in heterogeneous capital, the distortions caused by manipulating interest rates becomes more apparent.

  18. Keynes system (deficits during downturns and surplus’ during booms) would work EXCEPT that he naively didn’t foresee that politicians are simply incapable of doing the surplus part.

    In the real world of politicians only being able to do deficits, currencies will get destroyed. Sometime in the next 30 years, the dollar will be replaced by something else as the reserve currency, which will impoverish the US on a permanently lower plateau of lower material living standards.

    Going too 100% full reserve banking would be far more effective than going back to a gold standard. But the bankers will never allow it as long as moral hazard is flaunted with government bailouts.

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