LSE Events | Keynes v Hayek

or good evening everybody my name is Joe Corbridge I'm one of the pro directors here at the LSE and it's a very great pleasure on behalf of the school to welcome you all to tonight's event and we extend a very special welcome to any students that are joining us particularly from the LSE Summer School it's a great pleasure and a great honor for the LSE to co-host tonight's event with BBC Radio 4 shortly I'll be handing over to Paul Masson the economics correspondent or BBC Two's Newsnight program to give you a sense of the format for tonight's event and to introduce all of the speaker's if I might just make a personal aside one of the speakers of course is Robert Skidelsky who has in my view written one of the greatest biographies of recent years the three-volume biography of Lord Keynes and for myself speaking for myself that is the single best biography that I've ever read Skidelsky of course will always be sorry keynes will always be associated with cambridge a Freudian slip there and we should remember tonight in the interests of balance of course that the debate between Keynes and Hayek also brings to bear Friedrich von Hayek who was a lecturer and a professor at this University the London School of Economics between 1931 and 1950 so the relevance of these two speakers I think is obvious to all of you who've come out tonight there are a further two overflow lecture theatres to which this will be transmitted tonight and of course it will be made into a programme for BBC Radio 4 can I just be for handing over to Paul also make a plug for the LSE public events series it's not just in term time that we offer I think the best public event series in the UK we have events available and advertised on our website that are free and open to all tomorrow night were the tickets available we have a talk by David miles from the Bank of England monetary committee and a rather different one by Mike Atherton previous captain of the England cricket team unfortunately tickets for those have sold out but we do have if you have a taste for this a talk by Rupert Murdoch's biographer which is also going on tomorrow night that's not quite perhaps on scale of tonight's event so it remains only for me to ask Paul Masson to get tonight's events underway and to welcome all of the speakers so could you all please give a very warm LSE welcome to Paul Masson thank you I don't believe that hello while thank you thank you sir while my while my guests are just filing on and being miked up I'm just going to introduce myself and the format we're not on air yet I'll tell you when we are and thank you for coming and thank you to the people who I can't see in the other halls sorry you couldn't get into here um okay so my name is Paul Mason on the economics editor of news night I'll be the host for tonight's discussion it's being recorded as live so that means with almost hopefully no introductions stops and starts unless of course I get it wrong and it'll go out on the 3rd of August on Radio 4 it'll be repeated on the 5th of August and it'll be kept on the website in perpetuity so that people in 100 years will be able to say they thought that about Keynes and Hayek um now in a moment my producer will press the record button and I'll do some of this again but just to emphasize to everybody the speakers any questioners who managed to get in at brevity the speakers are going to all speak for four minutes initially and I want your question to be really short if you can one of the reasons for this is it's radio and an hour is a short time in economics and an and radio another is some of you will know about this impartiality some of our listeners get very very antsy if one person gets three minutes 59 and another gets four minutes or it's seen as evidence of complete bias nope when we get to questions raise your hand and when you speak tell me who you are till the listeners who you are and give me a brief question a bit of housekeeping please switch your Mobile's off not onto silent off the reason is some of us are on radio mics and it they just they just interfere I'm very sorry that as mobiles BlackBerry's 3G data cards mi5 surveillance devices anybody from the news of the world in a saint's same issue right and when we're finished there's one more thing certainly for this audience I'd like the others in the two other overflow rooms I'm afraid can do what they want but this audience after the very end I need you to stay for about three minutes while I record some links I when I say I need you to stay I mean you are not leaving it because because my bosses need you to be here while while I do the links um are we good everybody we need some level before we start so Lord Skidelsky could I just ask you to say something please I'm Keynes's biographer thank you and George I'm a professor of economics at University of Georgia Jamie I'm an all black supporter John I'm an economist in economics blogger okay was that level enough for everybody okay oh that the audience thinks they need more but this was Rhett level for radio so okay are we good we need to do the checks again I'm sorry I'm sorry you see a bit longer please Robert just just say a bit more please I'm professor political economy at the University of Warwick I keep going please until they tell you to stop what anything you want to say well I'm not an all black supporter but I am an England supporter i watch the telly I also I also watch the Test match I'm still an economist I'm still any comics blogger uh George please what test match going I'm afraid I watched the Tour de France instead okay that's as much sports as I've kept up with and Jamie Jimmy just give me a bit more level from you please okay well the All Blacks are going to win the World Cup and about two months time you're probably beating it probably's I'm going on your way good okay that's enough that's good right is everybody happy so with imagining the applause and the Hayek yo Hayek wrap thing gently ending will begin good evening I'm Paul Mason and welcome to the old theatre at the London School of Economics where with a packed audience and the panel of distinguished economic thinkers we're going to thrash out an argument so critical to economics that it's inspired not one but two rap songs the question is who was right indeed who is right Friedrich August von Hayek or John Maynard Keynes hire contains were giants of twentieth-century economics with very different ideas about how depressed economies climb out of recession the positions roughly summarized could be said to be free-market economics versus state intervention although as I can hear the teeth of various academics gnashing it is a lot more complex than that so tonight we're going to ask whose theories have a chance of digging the West out of the economic hole we're in our debaters well I want to let them give a one-line introduction to themselves Robert Skidelsky I'm Keynes's biographer professor of political economy at the University of Warwick George Celgene I'm a monetary economist at the University of Georgia in the United States Duncan Weldon I'm an economist and economic blogger and Jamie white I'm a former philosopher and management consultant Robert Skidelsky Lord Skidelsky I'm Keynes's biographer Keynes and Hayek both had a close association with this place of course Hayek taught here from the 30s to the to 1950 do we know whether they ever debated each other not not on this not on a platform like this they wrote and they wrote polemics they discuss but they never went head-to-head in the manner of the the famous rap video no okay but we're not just here to discuss the past and the theoretical arguments we are going to look back on the fundamental differences in approach and then zip forward to today's crisis so the format is the first round of two speakers to lay out the basic differences then some questions from me and some questions from the floor and then the second round on who has the answers for today there more questions and if you want to tweet about this the hashtag is hash LSE hv k now the aim is to keep the high intellectual tone appropriate to the LSE so we're going to begin as follows by taking a straw poll if you count yourself a Keynesian would you please shout after I have finished yo Keynes if you count yourself a follower of Hayek would you please shout your Hayek and if you believe if you believe both theories to be trapped in a molded marginalist paradigm that should have ended with the 20th century please go yone either oh no no they say there are no high achæans in a recession but I think the Hayekian czar here in force and that's very appropriate to the LSE let's see how it goes first up to speak four minutes Lord Skidelsky Keynes biographer crossbench peer emeritus professor of political economy at Warwick today today's Office of National Bureau statistics on the British growth second quarter growth shows that the British economy is flat on its back that wouldn't a surprise Keynes his general theory which was forged in the Great Depression of 1929 1932 was attempt to explain why recovery from that slump was so feeble his proposition was revolutionary at the time there were no automatic forces for recovery in a capitalist market economy the economy would go on shrinking should it reach some low point of stability and Keynes called that position under employment equilibrium the economy would then stay there until something turned up to revive the animal spirits of businessmen well here we are we're in a classical Keynes and underemployment equilibrium no growth and only draw Osborn to make us a cheerful Keynes said that in all stop a minute please your mic is poppin it will be please sort this out and then we'll carry I have to start with the review I'm sorry that makes a few more jokes yeah sorry sorry audience I'll just hum all so as to remind you because we're going out on the 3rd of August today is not it's better if you don't say today please people try and keep it so slightly tightest if you want to do you can say last week last week all right yeah yeah are we good is the other levels good could keep speaking please Lord Skidelsky then we can speak a bit more make another job please please we're all enjoying well what about next week okay then I'd be there not be totally hostile and just all to the speakers just be aware of where the mic is so you're not you're not just lodging it right great please well we can go with a clean start again can we on on Lord Skidelsky speech we're good I'll just wait to my colleague leaves the stage so Lord Skidelsky last week's statistics just out produced by the office of national national sorry I'll start again yeah worthy can you just see the latest statistics they're asking the latest statistics of the Office of National Statistics show that the British economy is flat on its back now that wouldn't have surprised Keynes he wrote the general theory in the in 1936 to explain the Great Depression of 1929 to 1932 and he put forward a revolutionary theory there were no automatic forces in an economy and market economy to produce a recovery the economy would go on shrinking until it reached a low level of stability and Keynes called this position underemployment equilibrium the economy would then stay there stay stuck there until something happened to revive the animal spirits of businessmen well I submit here we are today we're in a position of underemployment equilibrium there's no growth and only George Osborne to revive our animal spirits now Kane said in that in that situation a government needed to run a deficit to whatever extent necessary to offset the decline in private spending to cut to cut government spending in a slump was exactly the wrong policy it wouldn't produce growth only prolonged stagnation Keynes's message was you can't cut yourself out of a slump you've got to grow yourself out of a slump unless there's growth the government won't be even be able to meet its own deficit targets well it was Friedrich von Hayek he always liked the faun who upheld the Orthodox our theory which Keynes was attacking Hayek said that the main causes of slumps was excessive credit creation by the banks which led to over investment the boom was the illusion the slump was the reality so the slump must be allowed to run its course till the bad investments had been liquidated the American secretary of the Treasury Andrew Mellon a millionaire by the way was a great liquidator mr. mr. Mellon had only one formula wrote his boss Herbert Hoover liquidate labor liquidate stops liquidate the farmer liquidate real estate it will purge the rockness out of the system people who work harder lead a more moral life well that's roughly what Hayek was advocating in 1929 1930 he may have changed his mind a bit later but you notice how you do what you say at the moment when it counts that defines you and to say I'm sorry I didn't mean that really I've changed my mind is not a very good advertisement for his thinking now Keynes and Hayek never debated their differences at a meeting like today's but in 1931 higher came to Cambridge to explain his theory to an audience of young economists he impressed on them that the only way to recovery was for everyone to save more and one of them got up professor Hayek is it your view that if I went out tomorrow and bought a new overcoat that would increase unemployment yes replied Hayek turning to a blackboard which had filled with triangles but it would take a very long mathematical argument to explain why contrast this with Keynes whenever you save five shillings you put a man out of work now how Hayek's liquidation policies were faithfully by the German Chancellor Heinrich Bruni and brought Hitler to power Hayek later wrote a famous book the Road to Serfdom claiming that Hitler's rise had nothing to do with the slump and certainly nothing to do with his advice in the United States Roosevelt became president with the American Recovery to standstill and started the New Deal were stood in his battle with Keynes high gave up serious economics they're not serious writing he and Keynes developed a wary respect and even liking for each other we get on very well in private life Keynes said but what rubbish is theory is Keynes magnetism made a deep impression on Hayek but he never stopped believing that Keynes's influence on economics had been tragic so I put the argument who would you prefer to be in charge of our economic life today canes or Hayek thank you very much Lord Skidelsky to respond to that I'm pleased to introduce Jamie white former philosophy lecturer at Cambridge Cambridge University now head of research at the management consultancy Oliver Wyman four minutes please great we have booby-trapped this completely how shall I just put that back I hope you do it that's the problem I wasn't joking my so big booby-trapped it for you come off yeah yeah it was such a I say no sorry different things while standing in my chair and can you wait until the audience's for all my speakers please can you wait to the audience is completely quiet so that we can do our bit with our edit tools later thank you so Jamie the power of prayer give it one second please the power of prayer is something people are normally inclined to doubt but in moments of peril credulity increases and the idea of a magical benefactor becomes irresistible as the saying goes there are no atheists and trenches or to adapter to economics there are no Hayek Ian's in recessions no one wants to suffer the pain of liquidating bad investments including the bad investment of working for the wrong firm during a recession the Keynesian idea that government spending can save us becomes irresistible hence the return of the master as Lord Skidelsky puts at the title of his recent book since Keynesian policies were last popular and unsuccessful in the 1970s the growing consensus had been that paying people to dig holes in the ground and dropping freshly printed dollar notes from helicopters are not paths to prosperity but it does not take long to desperate to forget thousand unanswered prayers when the Federal Reserve's price fixing and interest rates finally led to a financial crisis in 2008 politicians around the world recommitted their lives to Keynes that's all quite right politicians around the world recommitted so he committed the lives of citizens to government officials the central idea of Keynesianism is that because ordinary people are subject to irrational mood swings politicians and their appointed bureaucrats who are cleverer and less animal in their spirits should force us to make the correct investment decisions in your irrational fear you may be unwilling to invest in a failed bank or a company that builds green cars or that makes tunnels allowing turtles to cross the road in Florida you may be unwilling to invest in a firm that buys cars just for the purpose of smashing them well then government officials will make you invest in them by borrowing the money investing those enterprises and on threat of imprisonment making you service the debt through your taxes submit to these superior people and you'll be saved you may think the talk of Prayer submission and salvation is unfair Keynesian economics is not a religion but a science when Christina Romer President Obama's advisor designed the stimulus package for him she did so with mathematical precision borrowing hundreds of billions to spend on Turtle tunnels on the lake she told us would have a multiplier effect of 1.57 for every dollar of government spending GDP would increase by a dollar 57 not a dollar 56 a dollar 57 this is science unfortunately in the same report we learned that miss Roma's Keynesian model predicted US unemployment peaking at 9% without her stimulus and at 8% with it well we got the stimulus and unemployment peaked at 10% the Keynesian model didn't just get the magnitude of the effect wrong it got the direction of the effect wrong as it did during the Great Depression the Keynesian policies followed by the Hoover and rusev oh uh sir yes and Roosevelt administration's which was supposed to shorten the length of the downturn caused it to be the longest in known history excuse me the problem with Keynesian economics is not that it is unscientific like any good theack scientific theory at issues testable predictions the problem is that it is false macroeconomics is a difficult and relatively new subject even theories that have not yet experienced repeated empirical reputation such as Keynesianism should inspire skepticism to discard voluntary exchange and the normal consequences of business failure in return for the promised benefits of some miraculous macroeconomic theory is intellectually adolescent someone who does it is like a teenager who having read a New Age self-help book comes to his parents and tells them that all their inherited wisdom is Buncombe alas unlike teenagers the wishful politicians who adopt Keynesian economic policy are not just hormones and Big Talk their hormones and big government the Keynesian delusion encourages politicians to wield the power of the state in ways that do enormous harm okay just let me just probe that for a minute um Lord Skidelsky you bring in our Bruning z-- government prior to Hitler but we could also bring in AI kelmarsh at Hitler's own economic advisor we could speak of Maxton in the labour party indeed oswald mosley during his time in the labour party and after who kind of all got the same idea that Keynes got which is demand management state intervention is Keynesianism not simply the the intellectual byproduct of the fact that capitalism moved in a state direction in the mid century I mean what's special about the work of the man himself well at the time and and Jaime White's speech typifies this there was the economics profession do not believe in state intervention in the working of the economy they thought the government should stay clear and the economies became extremely volatile as has been shown just very recently and these big fluctuations were not something that economic theories explain and Kane said that you cannot suffer them governments ought to do something about them because otherwise there would be too much pain george Celgene as one of we are about to hear one of the defenders of Hayek Hayek is often characterized as a do-nothing theorist particularly you heard their Lord Skidelsky give you the example of Andrew Mellon the classic example liquidate everything was Hayek in this sense a liquidator it was he a do-nothing economist well there was a liquidator but he wasn't a do-nothing economist there's a story attributed to Keynes I think it's a Mis attribution actually that he was criticized by someone for having argued something different than he'd argued in the past and the story is that he said well sir when I come across new facts I changed my mind what do you do think it's a misattribution but never mind Lord Skidelsky has in fact owned at Great Lengths how Keynes changed his mind he wrote a tract on monetary reform then he wrote a treatise on money which had much different ideas and finally he wrote the general theory 1936 now in 1929 Hayek did not place a great deal of emphasis on his public statements then or in 1930 about the need to avoid a collapse of spending but he changed his mind in 1931 he had already begun to change his mind and by 1930 to 3 which is when the collapse had really gotten serious and nobody knew how bad it would get in 29 he was emphatically and very clearly arguing that it's necessary to maintain the level of spending and that the sound monetary system ought to do that in other words was hardly any difference between him and Keynes when it came to maintaining spending the hike wasn't an inflation astana start another boom but he was neither someone who said let's spending collapsed it doesn't matter or it's a good thing not after the actual collapse came we could that wasn't what he said in 1931 and not not what he said in the debates in 1932 if he if he changed his mind it was a very quiet change and no one was aware of it at the time and that maybe so and only maybe maybe historians erver of economic thought on it unearthed these changes of mine from some dusty archives but I just remind you that in 1930 1979 so far was he from having changed his mind but when it was a question of reducing inflation he advised mrs. mrs. Thatcher to do it all in one go he said yes they'll be half the population will be unemployed but it will be for a very short time yeah that's how half I had changed his mind George Celgene I see you are delving into your mouth chafing at the bit I'm shaking it I actually gave Lord Skidelsky my essay that goes into this in great detail and soon he will know he will know more about this he's taught me something already which is that Hayek was a fun-loving guy which I didn't know but in any event in his essay on saving 1930 but there is a passage in prices in production first edition 1931 that says oh yes if the losses he falls it is people hoard we must have more money to offset that but it's in the end of the book because the book is mainly about how we must avoid booms if we're to avoid busts George woody would he have supported quantitative easing would you have supported everything principal he would have he didn't have any faith in central bank's ability to get it right but he expressed let me read a passage from saving 1933 unless the banks create additional credits for investment purposes to the same extent that holders of deposits have ceased to use them for current expenditure the effect is the same as that of hoarding currency and was all and with all the undesirable deflationary consequences attaching to that and one more very quickly second edition prices in production 1935 he apologizes in the preface for his one-sided treatment in the first edition and emphasizes the need that that the emphasizes that any change in velocity of circulation would have to be compensated by reciprocal change in the amount of money in circulation if money is to remain neutral toward prices that's about as clear as you can get about stabilizing spending Duncan Weldon I just want to bring you in here for a second welcome and just to bring it slightly up to date the idea behind Keynesianism is that during the boom the government wears a hair shirt but during the recession the government intervenes and you are quite close to the centers of power towards the latter end or from the labor government and where was the hair shirt well I mean this is often something people say about Keynesian they say you know government's want to be very Kenzie and during a downturn nobody wants to be Kenzie and Joan and Upton and it's very very hard for politicians but I would point out is in 2001 the last time the UK government was running surplus the Conservatives under William Hague attacked them for running a surplus saying they were hoarding taxpayers money and should be cutting taxes it's very very hard for a government to run a surplus but the thing is the public finances were not in ideal State in 2007 but not in a disastrous state the actual outstanding debt was lower by international standards I would also say this say rather than running a small but still a structural deficit in 2007 the UK government has been running a small surplus and nobody saying they should have been running a huge surplus what would our deficit be now okay maybe rather than being 10 percent of GDP it would be 8 percent of GDP it wouldn't make a huge difference okay I'm going to open this to the floor I'm wondering slightly I can see where all the high achaeans are camped on this balcony what you all think of Georgia's definition and enjoyed his revelation impact them that Hayek as a monetary stimulus proponent but other okay stabilization but printing money um let me take any old question who wants to speak sir up there it'll take a couple of seconds for my colleagues to get down with the mic gentlemen here on this side of that balcony on the second row if you can go down with the mic please and somebody else please give me a hand there's a gentleman right in the middle it's confusing my colleagues here with the thing right in the middle there keep your hand up sir and as a gentlemen here will be taken after him so we are about to go to you sir a question for Lord Skidelsky does he think that increasing deficits has absolutely no effect on interest rates and monetary policy and as you considered the fact that austerity might be have a stimulatory effect in reducing interest rates generally across the economy just give me your name before you put the micro so I Madame Eman I'm a student at UCL okay Robert well there's there's an empirical answer and and the theoretical answer there is no evidence that I found in the least bit convincing that fiscal austerity produces recovery in fact I don't know what the theory is except that maybe it makes the markets more confident as for as for the idea that a deficit crowds out private spending by raising interest rates I don't think again that is correct the point the point is of course that the money is not being used in any other way and it goes it's it's bound to go into into government securities and that's why the British government has been able to get its money so cheap that's why the American government has been able to get its money so cheap despite the fact that they're running huge deficits and and it's not it's not the reduction in the deficit that cheapens the cost of government borrowing so I think both those on both the empirical side and the theoretical side it's dead wrong truly bring you in Jamie why don't the point I would wanted to clarify it from the previous discussion was that if you trying to understand what the position of Hayek is on this doesn't mix up the monetary issues and the fiscal issues which I felt the earlier discussion was doing a little bit so the hike wants to keep monetary stability neutrality was the word he used because when you get big swings in the money supply relative prices are distorted so you can't you lose the information that's required for the market to work properly but he was against clearly he was against the kinds of government interventions in the economy that redirect resources from one place to another and in fact his Fisk his monetary policies were part of avoiding that a part of avoiding the distortions that you get when the money supply starts swinging around so I just wanted to clarify that point yeah it's not distinctive to hire any of this I mean there were people who believed of course in monetary policy it was the accepted thing in the United States in the 1920s Irving Fisher was the blue was it was a big theorist of that that you use monetary policy to stabilize the economy the fact that Hayek's managed to accept this by 1935 yeah okay a great great achievement everyone knew about velocity and what you had to do when velocity fell the point is to get the money spent this was the Keynesian point just printing a lot of money and doesn't actually make sure that anyone spends it it can be hoarded and then you can go on printing and printing and printing that the genius of the Keynesian solution was it was a way of getting money spent when people were hoarding it that's that's the whole point George you know are keen to get in on this yes well look what they're there many other differences between Hayek and Kane I'm going to talk about liquidity traps that sort of thing just a liquidity trap ease oh that's when you create more money but it doesn't get spent I will address that but I want to make one thing clear Hayek was consistent in wanting stability of spending he worried about not just the just the damage done when a when spending collapses right he worried about the damage done when spending grows too quickly and his theory of the boom was that when spending grows too quickly you get very serious damage and the bust is a result of that Keynes didn't worry about booms he had nothing to say about booms animal spirits are on then they're off that's the fear and this was neglecting the fact that money is excessive money creation is no more neutral than deficient money creation Hayek was consistent he was symmetrical Keynes was not he was purely a theorist of the bust sir Uther please hello my name is Gordon Kerr of the cotton Center Duncan made the point that our national debt was relatively low in 2007 and then of course we had the biggest economic stimulus of recent decades the bailout of the banks seems to me to have been an economic disaster saddling the next generation and ourselves with unimaginable and unrep able levels of debt am I wrong I'd make I'd make two points on that the first one was yes we took on a lot of debt or three points in fact yes we took on a lot of debt when we took over essentially RBS and Lloyds TSB we assumed their liabilities we also though assumed their assets and I often find it very strange that we always talk about government debt but don't look at the asset side of the government's balance sheet the second point I'd make is if we hadn't done that if we'd actually allowed RBS and Lloyds TSB to fail I think that would be an absolute catastrophe for the UK economy literally cash machines would have stopped working this could have been a far more severe economic blow than we had finally I'd say though yes I think the way we've taken over RBS and Lloyds TSB and then just sat on them and not changed anything else isn't ideal I think quantitative easing as it's worked in principle I support quantitative easing but printing 200 billion pounds and not ensuring it going to the real economy was not a good idea I think Ken's would have been more inventive I think Ken's might have said let's print the money and give it to a National Investment Corporation fortunately we have one of the key figures of the free banking school here to explain what they might have done George do you want to just chip in here but well I hate to anticipate my speech but let's not forget Keynes argued it doesn't matter how you put the money into the economy you can build pyramids with it you could dig holes in the ground and have people fill them again you can fill bottles of bank with banknotes and bury them here and there that kind of argument lends itself to the assumption that it's also ok to give the money to insolvent banks where it sits that is as much a consequence of the Keynesian emphasis that's spending alone any spending can get you out of trouble as it is of anything else wrong wrong well pyramid-building wrong getting it to the RBS what's the difference Cain said you fill up holes you dig up holes and fill them up again if you can't think of anything better to do that's apparently the government wasn't able to come up with anything better than giving it to the bank just one second to my colleagues everything I'm losing you in the ear piece that's why I can't can you just speak for a second yeah that's better thanks yeah thank you okay I'm a other questioner is just along here where are you sir yes yes bernard casey from the University of Warwick I confess to being a bit of a fan of Andrew Mellon and I am concerned about the redefinition of economic cycles which a previous Chancellor was very fond of his behavior seems to me almost Greek to use preachers but this leading to effectively a growth of credit and effectively to gross misallocation of resources particularly in the banking and in the housing sector if there are things which we have to purge it seems to be that Jamie do look meaner well Gordon I debt I don't think really is the the real problem with these policies if they worked if they would have stimulate the kind of growth that they're supposed to we could pay the debt off and future generations are going to be richer than us anyway so you know why not make them pay for us it's it's really now the real argument against this stuff isn't that kind of thing it's that you're it's the mechanism for allocating resources and the moral hazard you're building up so every time you bailout a bank and they started doing that back in the 80s in America you were you were going to have this the problem just gets bigger and bigger every time and ultimately you know it's it's that we are making the economy now structured we're putting resources in the wrong places let's see some more hands please for a minute I don't want to leave my audience with a complete impression that there are no female economists how could I leave you with that thought for a second um where's um there's a gentleman right on the front row here he's in the middle I'm but we'll take him in a minute because that person there in the pink t-shirt as well so keep your hand up please where were you there it's Keith's RAF runway second you start again while I'm quiet my name is Keith RAF and isn't the point about spending if you look at at the current financial crisis the Chinese with their massive stimulus actually made sure that that one he partly perhaps because of the political nature of the regime was effectively spent in investment terms in infrastructure and ever I had a dramatic effect in China where as the American stimulus to the contrary perhaps because he was inhibited by Democratic the democratic processes was not so effective yeah I agree I think I think if you look at the if you look at the faster growing economies they all have very big stimulus packages and if you look at the slower growing economies the slowest growing economies they've had austerity policies for quite some time but just one point which I think was is someone didn't get asked about the debt you know if you borrow if you borrow the money from your own citizens there's no debt burden for future generations because you're transferring money from them from the taxpayer to the bond holder for the bond holder to the taxpayer the people who are borrowing are getting back the debt and therefore there's no net future debt burden that of course is not very well understood and it only applies if you borrow the money from your own subject so you're in residence good I mean it is important because everyone says look at these huge burdens we're piling up for future generations not true really before we go on could I just get the last question - please - give me your name again and if you're from somewhere could you say where it is my name is Keith Rothman good ok that's it that's my odds nope looking at the audience as you were speaking there Lord Skidelsky I am struck by the fact that there all seems to be a kind of natural Hayekian ISM there's a naturalness to free-market economics for this generation and in a way much in the way that that state intimation ISM was the natural ideology of the 1930s don't you ever despair that the current generation just doesn't get it they'll do the Keynesian thing but they don't believe the theory well I don't know that they've been really believe the Hayekian theory you know high achæans aren't exactly thick on the ground they may be they may be here and and undoing there I I applaud their their eagerness to come and hear the Keynes in case but but on the whole they have no influence on policy and most people don't term don't actually think that they've got anything to contribute I mean it's one thing saying right you shouldn't have a boom and I accept all that such a bloom you have to regulate the banking systems but once you're there once you're in this hole what does Hayek have to offer what does he have to offer us Jimmy White I find the idea that the current generation a natural high Achaeans extraordinary claim after all these are people who basically live on the tit of the state they're all educated in state schools they're all traded in state hospitals I've seen focus groups that were I think one news night before the last election and ever they were asked about politics they gather people and all of them just said what's the government going to do for me that's what everybody asks the population of Britain is not Hayekian right madam gives your name and where you're from okay this is probably going to be the oddest moment my name is lovely - go spin it really is lovely and um my question is what would hey I can Koons have done and with the euro crisis and specifically specifically towards George which he would heck I've done a sort of to tear your a or more of a privatized euro as if I didn't have enough work on my hand well Hayek was no fan of the Euro he if anything he was a fan of the idea of a hard euro or hard ECU that would add to the menu of choices among Europeans but by preserving the existing currencies and introducing one more option just in case and I think Heights being vindicated I think that right now a lot of people would be better off if there'd still been a German mark and they could switch to it outside so if this is um you know if we look at what happened in southern Europe in the ten years before the crash when the ECB did set interest rates very low there is your classic Hayekian boom you know well done too high a key spots that but now we're in the crash again is it cancer is it Hayek what we've seen is an extreme adoption of austerity in coming in to Portugal now coming into Spain certainly in Greece in Ireland and what's happened we've had emergency budgets cutting spending the economy shrunk further the deficits have got bigger and what's been the answer we'll try again well George well the answer is first of all that what Hayek asta offers advice right now don't start another one in 2001 following the the.com boom let's not forget that right the Federal Reserve decided it was going to help the economy recover by holding down interest rates and the high achæans consistently warned of the dangers of that they've been warning about the dangers of this since the 20s and it keeps happening and happening again those who say Hayek has nothing to offer are very short-sighted they want you to not listen to him now so that they can say well he has nothing to offer next time we have a crash this is not good advice it's as if you were warned by someone not to go on a drinking binge and then you did it anyway and then you got sick and then this person said well you know you knew this was coming so don't give me that getting some real advice I can use what whiskey don't to tell you so you warn someone not to go on a drinking binge he doesn't take your advice he falls into the gutter he starts shivering and you let it you let him stay there yeah I thought you do the advice is to maintain the flow of spending to offset declines in velocity with corresponding advances in the quantity of money that is the entire words those are words well sir that all the con was up exactly let me let me pull time for a second action it's not about I couldn't walk into the Bank of England or the Fed and take over let me call time for a second on this let me call time for a second on this and come to the our gentlemen right at the back please my name is chef Malik I'm the co-author of jilted generation but I'm actually not going to ask a question on generations one instead that economics is essentially still a moral science and underlying these two great economists are the values of freedom for Hayek let's say and security for Keynes could you speak to whether that is you would say that's correct and then ultimately whether a sort of a new generation today has a effectively sort of you know once both and therefore needs a new kind of economy general right well I think that's an important point but I think that or question I think the Hayek in position doesn't need to be based on a love of Liberty though most higher Kings do love Liberty in fact you do good utilitarian arguments for it so if you have a rule of law based system a kind of market system the over the long run its utility makes amazing people are better off over the long run also wonderfully they're free the two things go together there's not a conflict under the state interventionist system you get a perpetual erosion of Liberty and a sclerosis in the economy and people are both less free and worse off Duncan I would agree with a lot of that I'd say most of the great macro economists are really political economists they're not just talking about how the economy functions they're looking out into relative society with governments I mean how else can you talk about something like real wages without there being political considerations and I think these biases come forward we've seen in the last few weeks as the economy has slowed all of the various right to economic think tanks outlining their growth strategy and their growth strategy is invariably cut or abolish the minimum wage cut corporation tax and a bit of deregulation that's not their growth strategy that's what they asked for every single week Robert Skidelsky and I don't think there's a real conflict between freedom and security one of the things Keynes said and I think you look back to the 30s and you realize how important was and I think you can see some of it today that without security freedom is in danger if in fact you inflict too much pain on economies cause too much unemployment to develop don't do things about it you start getting a lot of social discontent and I think he thought he had this very interesting exchange with Hayek in 1944 very friendly exchange and he said look we both want to protect freedom we just disagree about how we should do it because I think the effect of your policies will be to endanger freedom I think the effect of my policies will be to support freedom and in fact the liberal capitalist economy revived after the Second World War under really Akane's an umbrella we'll move on now there'll be another set of questions so keep thinking about your questions and keep indicating to me when I give you this the signal I will come back to as many people as I can but for now we would move on I'm Paul Mason and you're listening to Hayek versus Keynes I'm Paul Mason and you're listening to the high versus Keynes debate at the London School of Economics on BBC Radio 4 now in 2008 the global financial system stood on the brink of collapse Alan Greenspan the former Federal Reserve boss said he'd found a flaw in free-market theory a flurry of Keynesian intervention followed fiscal stimulus monetary stimulus competitive devaluation in some places capital controls and it worked in China but not in the West instead of bankrupting the banks we decided to bankrupt States so the euro is in crisis America stands on the brink of a technical default growth in the United Kingdom is flatlining who can save us Hayek or Keynes now to answer this I'm delighted to call on George Celgene professor of economics at the Terry School of Business University of Georgia thank you very much I'm going to stand very slowly so my microphone stays attached to me right so the difference between I'm asked to tell you what Hayek's advice is now I take it to mean what he would have advised based on the culmination of his theoretical work in the early 1930s not based on what he may have said in 1929 or 30 in a letter to the editor or what have you and the real difference between Hayek and Keynes is not about whether state spending should be stabilized stabilized the real difference is that Hayek saw a connection between depressions and booms that Keynes refused to acknowledge for Hayek booms involve unsustainable investment encouraged by easy monetary policies that are bound that is bound ultimately to lead to a bust maybe a serious one maybe not so serious so real recovery isn't just a matter of keeping spending from collapsing one must see to it that resources are redirected capital and labor both to the creation of new sustainable activities and that requires action in the sense that it requires not getting in the way of that reallocation thanks in part to easy money the world economy is now experiencing a very bad malinvestment hangover after a wild subprime lending party the Hayek uns warned against the party and now they're being blamed for stating that there's no painless way to avoid the hangover spending alone won't cure it because the economy isn't just suffering from a lack of spending its suffering from having made huge unsustainable investments in the housing and financial services industry when the bust came not the free-market easy money pardon me when the best came a lot of construction workers who had been building houses during the bust loss during the boom lost their jobs no one's happy about this of course but we have to accept that those people cannot go back to jobs building houses at a time when we're bulldozing the houses we already built the story in the financial industry looks better but is actually a lot worse it looks better in the sense that many bankers are still doing just fine I can tell from all the aston martins and Maseratis around my hotel in kensington but the fact is the financial industry hasn't retrenched in the way the construction industry has it's more bloated than ever in fact to judge from the actual statistics yet it's not adding value to the world economy nor is it doing its part to help other businesses to do so the straightforward recipe for a revival of healthy investment following the crisis the 2008 crisis was to liquidate liquidate Bear Stearns liquidate Fannie Mae and Freddie Mac liquidate in short the whole subprime bubble blowing apparatus that was nurtured by easy monetary policy and yes that would have meant letting insolvent banks that lent or invested unwisely go bust it would have been better to use new money to pay off depositors at those banks than to keep the irresponsible bankers in business instead our governments have chose to keep bad banks going and that is why quantitative easing has proven a failure it it isn't just that spending has hasn't recovered in fact consumer spending has pretty much gotten back to its pre-crisis level take my word for it this is a cure anyway uh the prior holding up a graph that yeah it was rash it shows it's tending to its pre-crash level the problem is a lack of productive investment quantitative easing failed because almost all the new money the Fed created starting with the money it used to buy vast amounts of subprime securities at the beginning of the crisis has gone to shore up the balance sheets of irresponsible bankers now those banks sit on piles of idle cash while other businesses starve or can't get started for want of credit and this the other fact in that that's encouraging this is the absurd Fed policy of paying banks not to lend now Keynesian Skol this situation a liquidity trap and claim that the answer is more government spending but this particular liquidity trap is one Keynesian ideas helped set because Keynesian support indiscriminate spending they say doesn't matter where the money goes you can build pyramids etc but to defend indiscriminate spending is to defend indiscriminate bailouts the government did worse than build pyramids it used new money to prop up solvent banks which are now so many giant liquidity sponges yet there are people with small businesses who can't borrow to return to my hangover analogy the economy is like a drunk throwing up the morning after the night before it's discouraging itself or trying to discourage itself of bad investments it was tempted to undertake only because of excessively bad money or largely because of it easy money pardon me giving it still more money won't prevent the inevitable suffering it might mask or delay it somewhat but only at the cost of more suffering later this isn't the sort of advice governments welcome they want a painless easy way like the Keynesian the one Keynesian offered but as Hayek ins warned again and again there's no painless recovery from an unsustainable boom the only way to have no pain is to avoid the boom itself to respond to that Duncan Weldon to respond to that Duncan Weldon an adviser to an international trade union federation back in 2009 Paul Krugman wrote that we were living through a dark edge of economics by that he meant what the dark edges were we're a time when centuries of previously gathered human knowledge were suddenly forgotten and I think that's quite fair to characterize much of the economic debate both in the current policy making circles and tonight stuff there are lots of very very simple questions that I thought had been settled 70 or 80 years ago during the Great Depression haven't been settled they're rearing their heads again today what Keynes was really fighting against in the mid 1930s in the early 1930s was what was then turned the Treasury view this idea held particularly by the British Treasury but by armed fiscal authorities across the world that government spending couldn't help in a recession it would simply create our private spending from no net effect or even to make the situation worse nowadays we don't call this theory the Treasury view we call it expansionary fiscal contraction the idea is as government spending cuts back growth will actually pick up because private sector investment and exports step up to the plate Larry Summers the former US Treasury secretary has described the idea of expansionary fiscal contraction as oxymoronic I think he was being kinder I wouldn't have added the oxy Britain to a large extent has voluntarily embarked on the toughest course of government spending cuts for decades I say voluntary because this was a choice yes Britain was running a very large deficit but the markets were still lending to Britain a three and a half percent near historic lows for tenure giver meant bonds the existing stock of British government debt was low by international standards and British government debt has the longest maturity in the developed world our average debt is fourteen years away from being paid off yes the deficit has to be brought down but the markets were not screaming out for it to be eliminated at such a rapid pace one year ago the UK government policy turned more Hayekian and the early indications are it's not working in the last nine months the economy hit by collapsing confidence a via T rise and the beginnings just the beginnings of austerity has grown by 0.2% in the nine months before that when we still had in place a broadly Keynesian stimulating policy the economy grew by two point one percent two point one percent versus zero point two that's quite a difference the government are now telling us that their rapid deficit reduction has returned stability to the economy that's actually pretty fair if you think about it nine months of stagnation is pretty stable in late 2008 the center of the world's financial system took a near fatal shock demand evaporated and world trade shrunk at a quicker pace than at the onset of the Great Depression governments around the world responded with a Keynesian stimulus stimulus package two and a half years later collapse has been avoided the outlook is still far from good but out try collapse was avoided where are we now then the recovery in Britain which has led the way in terms of austerity amongst major economies is anemic the u.s. is moving via what looks to be a high-stakes game of budgetary chicken towards austerity of its own asterick is already being pushed to its limits in southern bit of the eurozone and is also there in the north we have near-simultaneous global cuts in government spending the most since 1981 according to the IMF as Ken said you will never balance the budget through measures which reduce the national income think about where we are in Britain at the moment the consumer is over indebted and not spending our export prospects look pretty bleak remember our largest trading partner is the eurozone which has its own problems at the moment and businesses are not investing if government spending starts to be kept back where is the demand going to come from I'd end by saying Keynes once wrote that one day he hoped economists would be regarded like dentists that is to say humble and competent people whom you went to see when you had a problem requiring help so I ask you this if you had a case of toothache which of these dentist economists would you rather go and see dr. Ken's who would try and find you a solution or dr. Hayek he would say well you shouldn't have got toothache in the first place don't worry about it eventually the rotten teeth will fall out all by themselves now Duncan introduced a phrase there expansionary fiscal contraction I just want to unpick for all listeners it means if I get it right that people think the economy will grow again if you shrink the state I wasn't so aware that this was central to Hayek's theories it may be something that the two gentlemen are on the Hayekian side agree with but what would Hayek say about that that and it is something of the of the new it's the new orthodoxy of many governments who are pursuing orthodoxy clear the state out of the way click reduce the risk free rate of government borrowing and you get a recovery what do you think George Celgene well Hayek was not in favor of fiscal expansion that's for sure his argument was an argument for a monetary policy that stabilized spending both to avoid booms and consequent misallocation and to address busts at least that's the view he came around to fairly quickly now as for fiscal policy probably his ideas were where indeed quite Orthodox that it took too long that it was wasteful the market was generally better at allocating spending than the government would be but Hayek didn't live in a world like today where the government has done things to prop up zombie banks that sit on all the cash they can get hold of so obviously he didn't have anything to say about the particular problem that's keeping quantitative easing from working now but he in principle favoured monetary stabilization not fiscal expansion Jamie white I just want to ask you the question on the back of that I'm okay we don't like the idea that the governments around the world's saved the banks we think that it may have contributed to all the problems we're now seeing of the the inability of money printing to increase or stabilize you would like demand what would you do though if you started we've handed you the keys to the Treasury today in the United Kingdom what would you do to the Treasury well to any government department you you attitudes accept the Culture Media and Sport which I can't see the relevance on oh I'd be a bit I'd be at the airport in 15 minutes in my suitcase Phil I think it's the problem I would cut spending more than already know the no I love short strictly I mean the cuts are minut so it's simply that there's a mischaracterization of what's going on in Britain at the moment it's quite Keynesian in fact because once you've got the welfare state in place you get an automatic expansion of government spending during a downturn and we are also digging holes in the ground in Afghanistan and Libya with we have bailed out the banks it's all pretty Keynesian actually it's just not as much as Keynes Ian's would like and what the Keynesian always argue is that if it's not working it's only cuz I've done enough and in fact what little they have done has saved us from catastrophe if they hadn't done all the things would have been so much worse and yet they have though they prove this that what the argument is they use their own models they use their own models that say and then their own predictions don't work and they come out wrong as I said in my talk and then they say well that's because things must have been even worse than we had known so they readjust their assessment of the reality on which they're working in that case I was actually I'm too charitable to say it's scientific it could be a science but the way paintings actually proceed means there's not scientific at all Lord Skidelsky can I just come to you and say well what what is the Keynesian answer to no bearing in mind we had the bank bailout a lot of people think it created moral hazard we have money printing on both sides of the Atlantic that is doing a bit on the in the American case huge stimulus not particularly stimulating the economy what more would a true Keynesian do well I think a true Keynesian would look for an investment strategy which was could be separated from the budget austerities demanded by the markets and I think governments are committed to that kind of fiscal austerity reducing their deficits but on the other hand you have to get investment going and I would set our and I think Kane supported something like this in 1933 I would set up a national investment bank and I would we already have an institution that could be enlarged to fill that purpose which is the Green Bank which has got a capital of 3 billion but it's not allowed to borrow and it hasn't started I would I would make it a much bigger bang and I would allow it to borrow borrow frozen savings that now have no use and aren't being lent to businesses and that would sort of get that was somehow offset some of the depressive effects of the austerity program could well just one finish I mean the higher keynes are a sort of they live in a dream world of their own tiny tiny cuts 32 billion a year for 5 years out of the economy tiny cut reallocation of resources these are just phrases what does it mean in terms of human lives it's sort of so abstract and and and unreal George soldier that's why no one listens to George soldiers well let's see we had some government sponsored lending institutions in the United States they had charge of a lot of money during the first decade of the 2000s and guess where they put it all in the mortgage and subprime mortgage market I don't think governments can be trusted to do better than the market they can only be kept from doing bad things as for fiscal expansion look it didn't work it had very little and in fact it had nothing to do with recovery from the Great Depression in the 30s and I take this on the best possible authority unassailable I hope Lord Skidelsky will agree that Christina Romer knows about these things and she showed that the recovery such as it was despite Roosevelt's New Deal that took place after 33 was all because of monetary increases based on gold inflows and to some small extent on devaluation small relatives of the gold in flows from a jittery Europe that's the recovery there's been no episode of a depression that was cured by fiscal expansion and the US has been conceded had no austerity it might have one soon we've spent all kinds of money huge bundles of money and we have had less recovery than most other countries in the most post boomed unemployment I'm number to take another quick fire round of questions from the audience sir at the top there please hello my name is Rory Nichkhun I'm from the Taxpayers Alliance while recent growth figures have been rather flat the latest obr figures show George Osborne's government has been ejaculating four point nine percent more stimulus into the economy this June than June last year is it time for cuts done who also answer Duncan and it's always it's always nice to get a question from the taxpayers alliance Oh some of my favorite acts some of my favorite armed prayers on my blog comes from the taxpayers alliance I'm intellectually dishonest a hack and know very little about economics so bear with me if I stumble a bit here it's interesting it's very interesting in the last quarter government borrowing isn't coming down despite a via T rise despite six billion pounds of spending cuts last year and more spending cuts starting now borrowing is not coming down this is the Keynes Court I mentioned before you cannot reduce the government deficit through measures which reduce the national income the Chancellor is chasing his own tail every time he's cutting he's driving down growth that puts more people out of work text then the tax take it's a self-defeating strategy as Ireland and Greece have discovered over the last three years if it were creamy white your argument simply assumes the government spending does increase growth and the record doesn't show that to be true I mean the the problem of the the Keynesian position has been tried many times and it doesn't work that's why the segment is so strange the market mechanism is now it's understood how free exchange leads to the adequate to correct allocation of resources and on the you're willing to throw that away on the basis of a fantasy that government spending works when it's been shown repeatedly that it does not woman at the top that please hi my name is Polly I'm a student at the LSE and I'm currently working at the Institute for Economic Affairs um I know that the terms debt and the other time that she's deficits are sometimes used interchangeably and I'm back to learn the other day that deficit refers to the to the amount at which the debt is growing so by cutting the deficit they aren't actually planning to cut the debt they're just planning to cut the factor which is grip the rate which is is growing and now I wonder how many members of the public are actually aware of the difference in these terms and is either side worried that in fact the deficit is still increasing and that we're not going to even cut the deficit enough well I I'm very worried that the deficit is increasing but I would just point out as my colleagues just said the deficit is increasing because the national economy isn't growing and when you know and and and that's the source of revenues you could you could you could you could get the deficit down I am certainly cutting some spending but also get the deficit down by getting some growth going and then as the deficit fools the national debt stops rising and of it and eventually I mean it'll start falling but you know I'm worried of course we're worried the question is how do you do it and our contention is that causing the economy to flatline is exactly the wrong way of reducing the deficit George told you before I bring you and I noticed yet again you've got another graph for us if you'd like to describe a I'm going to describe it it's a graph showing what's happened to total spending in the economy since 2002 this is the u.s. pardon me for being u.s. centric and what's happened to investment the blue line is investment it dips down dramatically from a very high level at the peak of the boom it completely collapses in 2009 after the collapse there was so little investment that it wasn't nearly enough to maintain the stock of productive capital in the US economy spending dipped but not nearly as much here's the point of the chart spending has recovered much of what it lost investment has it now here's the thing government spending is not investment it certainly isn't investment of the sort that's needed to maintain the existing stock of plant and equipment to keep productive enterprise going to make the economy grow it's a fallacy that spending on government programs is the same as building factories and new businesses and so on it's absolutely not the same thing the kind of growth that gets you out of the deficit and we do all agree that growth is the thing that matters most is not the what government spending and fiscal expansion brings that's wrong I just a very very brief point government spending keeps up demand in the economy people invest when they see orders coming through insofar as government spending keeps up demand it encourages investment it doesn't government doesn't have to invest things in its invest itself that may be true in theory it's brought traffic but what about America America you know on my travels through America I don't see much of the fiscal stimulus filtering through into either investment or spending it's not very efficient as a country to spend the money the counterfactual is what would have happened without it now these guys think it could have well could a ring cover these guys think that um Roosevelt cause the American slump to be a lot deeper than it would have been a lymphatic they defended indeed Elle expert Lord Skidelsky will give me three minutes to do so right about Hayekian remedies had been adopted America would have absolutely bounced back after a little bit from from the greatest slump in world history right if you if you believe that you are really living in a cuckoo cloud world it really are and I mean it's not it's not the it's just not true you you you you you got whatever growth you had in the United States economy through Roosevelt New Deal policies and just one last point the real recovery from the American depression was brought about by massive state spending it was cool the second world war actually one minute to just go back on that Robert Higgs is an excellent economic historian he's written a wonderful essay called did World War two and the depression the wartime statistics are seriously warped correcting them for the actual Raqqah to try to get a true gauge of the actual recovery of the private economy shows there was no genuine recovery in World War two none until the war ended and not because we maintained Keynesian policies but because Truman ruled back he essentially repealed the New Deal the New Deal itself did a lot of harm particularly the national recovery Association which essentially prevented any adjustment in prices by setting price and wage controls throughout the whole US economy designed to keep prices up when the NRA kicked in the real wage rates actually bounced up because of the required rages at a time when 25 percent of the labor force was begging for jobs how's that for price controls woman in the middle there please Linda whetstone though the inflation figures don't reflect it anyone who has to shop will know that prices are running faster than any of us can ever remember I don't hear this being attributed the vast amount of money being printed around the world by a number of governments but I can't see that this won't be the eventual result I think I think if we look at them the British numbers on inflation yes CPI inflation and RPI in flesh and the two usual measures above running very high and they're running well and excessive wedges real wedges in Britain have been falling for 18 consecutive months this is the problem but if you strip out the effects of the VOT rise that comes down a bit more than that though if we try and break it down as the Bank of England is done between domestically generated inflation and internationally generated inflation domestic inflation in the UK is running at a much lower rate what we've got is we've got rising oil prices other rising commodity prices rising food prices on an international scale coupled with the VAT rise hence the high inflation and just for the uninitiated just for the uninitiated CPI inflation is the International measure the government uses RPI is what it feels like um woman up there woman up there hello hi um this going back a couple of steps you were saying that this is very American centric in its discussion I'm very interested in the last recession we had I went to work in Germany and I went to work and I was working in construction industry in Berlin where there was a huge state investment to rebuild not only Berlin but the whole of the Western economy after 1990 jermay seems to be doing very well today thank you very much and also investing hugely in green economy they have the KfW Bank which is something similar to what was being discussed by Lord Skidelsky they are in the process of potentially speeding up bailing out Europe why does nobody look at the successes in Europe and countries like that and just give us your name please in any institution you want to be problem yeah my name is Henrietta Lynch and I'm from UCL okay well I had always taken it that the the Keynesian to treat Germany as a not a very Keynesian country if I recall in an interview of you Lord Skidelsky you said that the Europeans like Germany were not following the Keynesian programmer would come to rue the day so I wouldn't take Germany as a strong argument not now I mean they're their apostles of austerity but but the question was quite right the Germans have used state institutions the KfW is one of them for investment in infrastructure and green technology and more generally the Northern Europeans are not high achaeans they've got very very bye-bye-bye Hayek in standards and and and and and our standards high rates of Taxation they have very large state sectors they work less than the Americans or workaholics and they have very high standards of living and no one now gives any any any pays any attention of the European model we haven't hard we've hardly mentioned it here but it's a very successful model and it's not a Hayekian model George told you yes I'd like to come back to inflation and for once I'd like to say something nice about Keynes and what I'd like to say is that just as just as it isn't true that that Hayek didn't care if spending collapsed it's not the case that Keynes was an apologist for inflation he was consistently opposed to inflation from his earliest work to his last when indeed inflationary pressures became a problem in with the outbreak of World War two Keynes immediately proceeded to argue for restraint and money creation and other measures to make sure inflation did not become serious in light of his consistent opposition to inflation I think we have to question whether Keynes would be happy with monetary policies that his and other measures that his so-called followers advocate that would almost certainly create inflation that they think the inflation that they now consider to be be useful and desirable for helping an economy get out of her bust lady here please Sybil glossary sick form student this is for George Celgene but others as well and you spoke of supporting the bad banks as you call them but considering the effect of the collapse of layman's on the global financial system and the economy what would you do if not prop up the banks which are failing which you say are sitting on the cash and was there any alternative which would still allow for the availability of credit to businesses and consumers and if this happened to get in the future what would you have done well like I think it's a myth that it was the collapse of Lehman's that caused what had been a financial crisis only to become a general economic crisis they've been quite a few studies looking into the timing of the collapse of spending and particularly of the seizing up as they called it of the interbank or wholesale lending markets it appears that that's coincided not with the failure of Lehman Brothers but with the feds implementation of its policy it's ridiculous policy I think we'll all agree of paying banks to not lend money it was on the day that that policy took effect that the wholesale lending market in the United States seized up it wasn't worth bank's effort to lend to other banks liquidity when they could get interest just by holding on to it themselves Duncan well then let me just throw that back at you because it's a persistent thing this audience is raising and the public okay we may have had to bail out some of the banks but as a result the zombie capital basically in the banks in many businesses among many family we're just not prepared to take that final moment of crisis resolution and write stuff off what are the Keynesian say about that I think it's actually a lot of interest in Kenzie and forth over the last since Kansas deaf economists such as Minsky you people ignored and now really coming back to since the crash or recently people like Richard Koo who have pointed out if you get these huge buildups of debt in economies and I'm not talking about public sector debt I'm talking about debt at the corporate level debt at the household level debt in the financial system Richard kook what we're going through now the same is what he called the Japanese problems of the 1990s a a balance sheet recession all of these corporations households are just trying to pay down debt and things stop working when people are just trying to pay down debt if your entire private sector is trying to deleverage trying to pay down debt government has to spend otherwise no one does and we get in a negative feedback cycle of everything going down banks there are healthy banks and those banks are the banks that ought to be getting money and would be getting it if the other banks were wound up people would take the money away from Citibank and all these other zombies and they would put it in banks that will put it to you to work in the economy I will just point out that Citibank itself Citigroup its parent can we may disagree that it itself is a zombie I'll take my phone I'll take my final question up there please I am my name is Tom Boardman I'm not really from anywhere but just a quick question to the high Achaeans in the room just wondering what Hayek would have made of the dot-com bubble whether he could have anticipated it and I think that it the question is relevant because the dot-com and the Asian boom-bust cycle are cited by critics of free-market economics as not we didn't just have warren irrational period of exuberance but we had kind of three came along at once and this is just the latest one what does freak market economics do to stop the recurrence of these things it eliminates moral hazard that's the main reason that that's what it can mainly do so you have a system of bailouts of subsidized debt effectively in the economy and this is encourages bubbles I'm not saying that bubbles would never occur without such distortions but these distortions in the market economy positively encourage them and Hagen's are not a utopian theory it doesn't say the world will be perfect if market forces but there is no better system Robert Skidelsky before we wind up john maynard keynes could be reincarnated for us in this room for 10 seconds only what would he be saying to President Obama he would be saying set up a national infrastructure bank to get investment going in the United States that's what he'd be saying now and I'm sticking at stuck to my ten seconds unlike my opponent I might reduce you George to eight on that basis but George Celgene if Friedrich August Hayek could be reincarnated right in front of us what advice would he give to David Cameron his advice would be that if you keep relying on central banks to get monetary conditions right you're going to keep having boom bust cycles and you're going to have to think about ways to ultimately dispense with central banks if you want to avoid these kinds of crises or in other words moving Kings should maybe stay at the cricket ladies and gentlemen we're nearing the end of the program Cain's famous last words were I think I should have drunk more champagne I can't offer you any but the bars around the LSC will surely reverberate for the rest of the evening with continued argument and disagreement for now we will close by taking a moat up for now we'll close by taking a vote in the manner we started in answer to which of these two great economists was right and which has answers for today beginning with Keynes give me your response well he who shows lowest shows last I think from there I think the Hayekian slightly habit it just remains for me to say thank you to Lord Skidelsky George Celgene Jamie white and Duncan Weldon from me Paul Mason at the London School of Economics thank you and good night please stay here please leave the recriminations until we get off the platform just listen to this for a second hello and welcome to the big fight here on the stage at the London School of Economics in the interventionist corner are the Keynesian start again they start again please know you understand where I'm going this is the trail hello and welcome to the big fight here on the stage at the London School of Economics in the interventionist corner other Keynesian 's in the free-market corner the Hayek ian's and here on radio 4:00 on Wednesday night at 8:00 tomorrow night at 8:00 tomorrow night at 10:15 you're laughing I'm laughing but I'm gonna have to do it until nobody laughs and here on Radio 4 on Wednesday night at 8:00 tomorrow night at 8:00 tomorrow night at 10:15 tonight at 8:00 - tonight at 10:50 this is my job they call it economics they call it you cannot

Channel: LSE

Views: 208,439

Rating: 4.8484263 out of 5

Keywords: LSE, London, School, of, Economics, London_School_of_Economics, University, College, Public, Lecture, Event, Seminar, Talk, Speech, socialscience, John, Maynard, Keynes, vs, Friedrich, Hayek, BBC, Professor, George, Selgin, Lord, Skidelsky, Duncan, Weldon, Dr, Jamie, Whyte, Paul, Mason, economy, economies, finance, economic, money, supply, bank, banking, Keynesian, growth, fiscal, macroeconomic

Id: PLBOKq4On7k

Length: 89min 45sec (5385 seconds)

Published: Fri Aug 12 2011