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Saturday 30 May 2015

Keynes vs Von Hayek

(and much more)


the blog below is written as  continuous prose


Ben Bernake:

''I spent my life studying the Great Depression........it was not the failure of the stock market but the lack of credit which caused the Great Depression. Credit has the ability to build an economy but lack of it most certainly has the ability to destroy it.... and very rapidly....''

There were no two more influential economists in the world I grew up in than both Keynes and Von Hayek. J.M. Keynes I studied at school. Friedrich Hayek I encountered later on in life.
Perhaps it was first impressions or maybe my family circumstances (a very poor middle class background, where money was almost non-existent as most which Mom earned was spent paying bills – including school fees.)
Thankfully I grew up in a political environment where the priorities of health, education and basic social services-as extreme nets for those really impoverished (but most, alas, not for ourselves!) were provided by the State.  A great emphasis was placed on investment in a national public library system and, by any standards, libraries were in relative abundance and well stocked with materials.
Some of the health services, I can recall, were provided (or subsidized) by American charities such as The Rockerfeller and Getty Foundations, WHO and UNICEF.
As I recall these would include things such as basic polio inoculations for children (in a country where polio and tuberculosis were scourges.)

It's important to put my background into a perspective when discussing Von Hayek and Keynes because I probably grew up in the almost ideal economic model of society which Von Hayek would applaud (as being on the right road) and Keynes would despair as not providing sufficient government intervention (in terms of work programs and benefits for those less fortunate.)

Enough about me.

When I first read the works of J.M. Keynes it was almost like a spiritual revelation.
His model aptly described both why the Great Depression of 1929 had occurred and how it was resolved.
Keynes was a believer in the intervention of the State, not just as provider of basic services, but as a core defender and strategic planner of public services.   A public service would include Water, Electricity. Gas, Oil, telecommunications, Health, Education, Steel, Coal and any other critical strategic industry vital for providing for the needs of the individual or as a strategic asset.
Education was also a key service but Keynes was never opposed to 'competition' in this field but was of the view that State education services should eventually break the monopoly of elitist educational providers.
Von Hayek, on the other hand, identified a ridiculous over-abundance of credit (with nothing to back up paper money) as the chief villain.
Von Hayek saw the actions of the Federal Reserve (buying up debt to stimulate growth) as just exacerbating and accelerating the financial meltdown.
Thankfully Von Hayek was ignored and the great FDR (I always refer to him as 'the great' FDR because he put America back to work – public works programs, roads, railways, telecommunications, even dams (The Hoover Dam) were all testaments to public spending at a time when private capital had either retreated or was culling industry - as private entrepreneurs (industrialists) attempted to recoup their stock market and other financial losses by shedding their workforces - pushing even more ordinary people onto the breadlines and into the soup kitchens.
As far as Von Hayek was concerned, this was a normal 'corrective' process best left to market forces.
It did not matter that millions of children and their parents were starving, their parents pushed into
impoverishment by the loss of income from work, that families en masse packed all their possessionsonto trucks to head across the Dust Bowls to eke out an existence wherever they could find it – the promised El Dorado of the golden West Coast – if they and their family made it there alive (which many did not.)
Apart from suffering, this time gave rise to some of the greatest works of literature which capture many of the tribulations of ordinary folk.    I will just refer to two here:
John Steinbeck's  'The Grapes Of Wrath' written by someone observing, May Angelou, someone born just one year before the Great Depression and who grew up as a Black child experiencing the worst of the worst effects of the Depression, racism and no opportunities.
That despair and hopelessness which was was blind to color is apt in the choice of both Steinbeck and Angelou.    White folk likewise did what they had to in order to survive – and, if you were poor or unemployed, it was survival of the fittest which determined whether you would live or die. Hence my choice of Steinbeck and Angelou.    Von Hayek (were he alive today) would argue that Angelou's survival of economic and social adversity was exactly what he would have expected – and ignore the tens of thousands who perished because they were 'not fit enough' to survive.
I might be being a little unkind to Von Hayek but the essence of his argument was that the Great Depression was a 'corrective' process and, when the private sector was again confident that investment would yield the rewards it expected, it would again invest in profitable sectors – putting people back into employment – this time in a more robust, more efficient, slimmer and better adapted industrial working environment than had existed before the 'correction took place.
I would like to again turn this argument on it's head by saying that Von Hayek, seeing Stephen Hawking as a child quadriplegic (which he was not, but I am taking this suggestion to illustrate a point) (with nothing else as a guideline as to his intellectual potential) would dismiss as nonsensical the idea that keeping him alive would be of any benefit to society.    The idea of providing him with advanced technology to, say, progress in 3rd Grade or beyond would have been dismissed as lunacy by Von Hayek.   Von Hayek would add, no doubt that if Hawkings' parents were financially well-to-do, then how they choose to spend their money was entirely up to them but would emphatically dismiss the State as any source of provider for the value-added care required across many disciplines to keep both the child alive and provide him with opportunity to progress.
I am bringing Hawking into the debate because at a time of austerity and financial crises the first cuts always take place to services being provided to those most vulnerable who cannot protest - the elderly, the disabled and the very young.   With an ageing population in the developed world cutbacks on services for those in the upper (aged) and disability categories are the most attractive.
Relaxations on euthanasia and 'exit strategies' for the terminally ill and infirm are presented as
'fashionable' or 'worthy' options for the 'good' of society.   Indeed the processes could be made as easy as walking into a Candy Store (except, of course, that you won't be walking out!)
Some are even receiving Christian Church endorsements.
So Americans were saved from mass starvation and utter despair (and possible revolution) by FDR adopting Keynes' monetary theory of government intervention to save the economy from going down the toilet.   Huge public works programs were undertaken across America as the government both initiated projects and took stake holding shares in private enterprises to boost employment and inject purchasing power back into the hands of ordinary people.
It was FDR who saved the American economy from total collapse and started the process of America's ascendency as a world economic super giant.
The key strategies which both President Obama and FDR have both followed were that, in the event of a major economic crises, the taxpayer bails out the private sector where such is necessary to prevent dominoes effects which would otherwise collapse and shatter the entire economic system.
I believe that history will be kinder to Obama than the present pundits.
President Obama, history will conclude, not only saved the American but the world economic order from either total collapse or a transfer of global economic dominance to one (or both) of two other superpowers – in-waiting.
In my opinion there are two reasons why he has not been able to deliver the FDR syndrome for kick-starting the economy.
The first is ignorance and dogma.    Republicans lack both education in the real sense and are too dogmatic to allow a Democratic President to provide deliverance to the American people at this time of crisis.
The second is the misguided belief that in Ayn Rand, Von Hayaek and Friedman economics (and their acolytes) lie the only road to economic salvation for the free market economic world.      Other paths therein lies 'The Road To Serfdom'.
You may well ask why even bring in Rand when the title of the article is Keynes v Von Hayek.
Ayn Rand is 'the dark horse' in the room.   Neither economist nor mathematician but a writer and philosopher with strong views about existence, the state, capitalism, communism and individuality.
There are many influential (and of course rich and privileged) Republicans who susbcribe to her ideals and philosophies.
It is these misguided beliefs which, in my opinion, are ensuring the economic system in America stays stagnant.
Don't think that such ideas are confined to the U.S.   The above are giants in the sphere of philosophical, existential and economic thought, have huge followings amongst Conservatives (and even Liberals and Libertarians) in Western Europe and in the United Kingdom.
Western Europe is, however, a little more educated, mature and more circumspect to be too over-engrossed with Ayn Rand.   It has already gone through it's own more recent 'love affair' era of neo-Nazism and is wary of bourgeois existential philosophies such as Rand's which usually (ultimately) lead to the gas chambers or servitude for peoples (the helpless masses who through circumstance of birth cannot help themselves) in their millions. Nonetheless her continued appeal is similar to that of Adolf Hitler to this very day.    I am not comparing Rand with Hitler but her 'acolyte' following and adoration by an elite of very rich, well-educated influential and well-placed individuals in the United States cannot be easily dismissed.   Undoubtedly far more people read Rand as her philosophy for life appears to be, what I would call the 'Valhalla' or final destination of the gods of the philosopher Friedrich Nietzsche, national socialism and unbridled capitalism all combined - but without saying (spelling out in the crudest of terms) exactly what is required to arrive at this 'laissez faire' 'paradise' of governance by the chosen elite in a 'free' 'open' 'democratic' society.
It's almost as if the privileged pine for a 'golden age' where the serfs (sic. everyone else) live in blissful servitude totally ignorant of the forces which control and rule their lives and with no desire for freedom nor progress but continued toil from birth to the grave.   That's Ayn Rand in a nutshell.
I mention Rand's books in the reference section just in case you want to experience this journey for yourself.
Those captivated by her philosophies are usually very rich or privileged individuals and some who are very out of touch with, what I call, the reality of 'ordinary' man and woman in the street.    Don't misunderstand me here.    Rand understands ordinary day-to-day people struggling to get by from week to week but only from a sense of how to control and manipulate their thoughts and feelings to the betterment of her own elite and privileged class.    It is in this regard that I compare her 'vision' with that of Nazism.    (Indeed, in my opinion, Stalinism is also very much related to this same thinking.)
In a nutshell, Ayn Rand represents the 'holy sanctum' of unbridled capitalism – if only it could break free of it's 'chains'.   Her work is a 'cry' or lament of the privileged who have seen some (they would argue by saying many) of their 'rights' eroded through successive 'communistic' (mainly Democratic) administrations and legislation over decades and is an exhortation to return to the 'source' of freedom and individual liberty.
Social welfare nets,as a part of Federal State services, provide for a more balanced social framework than otherwise exists without them.   Such concepts, with the State as provider, are abhorrent to Ayn Rand's core beliefs.    Such 'communistic' frameworks undermine free enterprise.   [Those most affected by the absence or lack of such welfare programs are poor White, Black and other minorities already existing at the bottom of the wage or poverty scale as the most available vulnerable individuals for exploitation.]
At it's essence (the core of Rands' beliefs) is a 'Herrenvolk' destined to rule the 'ignorant' masses of the world.
If you appreciate ''Der Ring des Nibelungen'' then Rand becomes easier to digest.   Big government always stands in the way of the quest for 'The Golden Fleece'.   It has 'stolen' individual liberty and personal freedom which must be reclaimed by the bold and fearless.
Such philosophies, as ever, more often than not, ultimately, end up not with the promised salvation and freedom, but conflict on a global scale, enslavement to fossilized ideologies condemning conscientious objectors to places such as with Belsen, Theresienstadt and Sobibór concentration and death camps in Europe or, more recently, be they in Rwanda, in Bosnia, in Cambodia and, in today's world, in ISIL-style Caliphate concentration death States – where the only tolerable (and tolerated) viewpoint is that of their Waffen SS-style mind-control twisted interpretation of Islam to their prisoners - the ''untermenschen'' who must first be 'cleansed' of the Devil then, if allowed to live beyond this ritual, be 're-educated' into the true version of the Koran according to ISIL.
My analysis is no more aptly illustrated than in ISIL's most recent issue of it's magazine where one of it's female members praises the use of mass (even group) rape of non-believers to 'cleanse' them (their victims) of the 'evil'  within.   It is only after 'cleansing' and their disposal (murder of the mothers after giving birth - after a child with less of the 'stain' of 'sin' than it's 'demonic' mother) that a new generation (or new world) giving praise to Allah according to the real version of the Koran (sic. ISIL's version)  can be brought into existence*.
What followers or acolytes of Rand fail to appreciate is that within the global desire of the elite objectivist subscribers to exercise total control over the exploited masses, as with ISIL,  therein itself lies the seeds of its own ultimate destruction as, for example, in  its exhortation to undermine or weaken the social net of the State towards withdrawal of care for the weak and vulnerable in favor of private sector philosophy (provision) ultimately results in world-wide rebellion  and the development of totalitarian and extremist secular and religious ideologies 360 degrees  juxtaposed to Rands' values and ideals.
When you appreciate that the true essence of Ayan Rand's economic model is eternal slavery of the masses to the bourgeois or privileged, then it becomes unviable as a working model for the world – since it creates exactly those conditions which are the genesis of and breeding ground for the chaos, anarchy and revolution by the dispossessed and disenfranchised against their 'masters' which we see magnified in the strife played out through religion, tribe, race, ethnicity and class wars worldwide this very day.
Unlike a member of the British Royal family, none of Rands' elite supporters have ever spent a night homeless in the freezing cold to experience what those millions of impoverished Americans without proper heating have no opportunity but to accept nor how those without adequate money from their low pay minimum-wage jobs live on the fringes of existence, nor what those people too poor to buy food and (new) clothes for their families require to live in dignity, nor what the 60000* Americans living on the streets every night have to do to survive without food nor money.              It is these individuals who live in insular microcosmic social 'bubbles' shared with people like themselves, who churn out clichés by the dozen such as 'these bums [or hobos] should get themselves jobs' 'they just don't have what it takes'; 'they are all social outcasts criminals and drug addicts'; 'I've succeeded without help from anyone' ...who subscribe to Rands' economic models for human existence and even view Von Hayek as 'too liberal'.
[I was very fortunate to have worked, as an unpaid volunteer, with someone who was from a much more privileged background than Rand but her total antithesis.
She too had traveled in Eastern Europe both before World War II and in its aftermath.
She was instrumental in the creation of a body dedicated to the trans-Atlantic alliance (U.S.-Europe) but she never lost sight of the needs of ordinary people – despite her privileged background.
So when I discuss Rand, I talk about someone I can understand as I personally knew contemporaries of similar background but ones who never 'lost touch' with 'reality' – even into their nineties.
I am deliberately omitting Rand's 'appeal' to libertarians as it is too complicated an issue for discussion in this short blog.   Suffice to say, I believe that they are misguided and their concept of 'laissez faire' and 'the free market' are uniquely American in this regard. ]

To conclude this introductory blog, the world is facing very stark roads to follow for economic deliverance.   Three competing philosophies are being resurrected in the hope of salvation.
The three are as different as day, night and twilight. Whichever succeeds could well determine as to whether the world stays in global recession for decades or whether there is daylight at the end of the recession tunnel.  Clearly I do not believe that Rand or Von Hayek have the answer to a U.S. or world economic crash.   But many influential Republican decision makers in the United States most certainly do.    If they get their way after the next general election, expect communism, fascism and national socialism (or their equivalent inheritors) to be making spectacular comebacks as individual countries worldwide seek to assert their own nationalistic (or theocratic or neo-nationalist) agendas - as perceived opposition to imperial hubris.


©Patrick Emek, 2015

*The West has created this monster, ISIL, so when it looks into the mirror, ISIL is simply a reflection of failed political and ideological policies over decades and a failure of its own desire for control over affairs and destiny of peoples in the Islamic world.
This it will never recognise because to so do would raise too many troubling existential questions.
Some will say that ISIL is a deliberate creation of the West but I see it more as a byproduct or unintended consequential entity which now, unplanned, has an entire momentum all of it's very own.

*very conservative estimate – numbers have been given by other organisations of between 300000 to half a million homeless individuals for any one year in the United States

You may well be asking yourself:  'surely Rand cannot be take more seriously that Krugman or Friedman?'   In today's U.S. political world, dogma (or faith) supersedes all else.
Ecomomic models and policies are calibrated to fit the dogma and not the other way around.
(remind you of somewhere else?)



























[similar programs are being today undertaken by newer and more recent foundations such as




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