>> HOTEL CLERK: Lord Keynes! Welcome, sir. It's a pleasure.
>>KEYNES: The pleasure's all mine. >>CLERK: Your agenda--
>>KEYNES: That won't be necessary. I am the agenda. >>CLERK: [laughs]
>>KEYNES: Tell them I've arrived-- >>HAYEK: And then tell them I've arrived.
>>CLERK: And, your name is?
>>HAYEK: Hayek. F.A. Hayek. With an "H".
>>KEYNES: Freddy. (yeah) Keynes. Hey, listen, party at the Fed.
>>HAYEK: Already? >>KEYNES: Twenty minutes. Lobby.
John Maynard Keynes. F.A. Hayek.
>>KEYNES: Yeah, we're opposed >>HAYEK: We oppose each other philosophically
>>KEYNES: In the same studio
We've been going back and forth for a century
>>KEYNES: I want to steer markets
>>HAYEK: I want them set free
There's a boom and bust cycle, and good reason to fear it
>>HAYEK: Blame low interest rates >>KEYNES: No... it's the animal spirits
John Maynard Keynes wrote the book on modern macro The man you need when the economy's off track
Depression, recession, Now your question's in session
Have a seat and I'll school you in one simple lesson
Boom! 1929: the big crash, We didn't bounce back, economy's in the trash
Persistent unemployment, the result of sticky wages, Waiting for recovery? (Seriously?) That's outrageous
I had a real plan any fool can understand, The advice real simple: boost aggregate demand!
C, I, G, altogether gets to Y, Keep that total growing, watch the economy fly
We've been going back and forth for a century
>>HAYEK: I want them set free
There's a boom and bust cycle, and good reason to fear it.
>>HAYEK: Blame low interest rates >>KEYNES: No... it's the animal spirits
You see it's all about spending, Hear the register cha-ching
Circular flow, The dough is everything
So if that flow is getting low, It doesn't matter the reason
We need more government spending, Now it's stimulus season
So forget about saving, Get it straight out of your head
Like I said, "In the long run, we're all dead"
Savings is destruction, that's the paradox of thrift, Don't keep money in your pocket or that growth will never lift, because
Business is driven by the animal spirits, The bull and the bear and there's reasons to fear
It's effects on capital investment, income, and growth That's why the state should fill the gap, with stimulus both
The monetary and the fiscal, they're equally correct Public works, digging ditches, war has the same effect
Even a broken window helps the glass man have some wealth The multiplier driving higher the economy’s health
And if the Central Bank’s interest rate policy tanks A liquidity trap, that new money’s stuck in the banks!
Deficits could be the cure, you been looking for Let the spending soar, now that you know the score
My General Theory’s made quite an impression [a revolution] I transformed the econ profession
You know me, modesty, still I’m taking a bow Say it loud, say it proud, we’re all Keynesians now
We’ve been goin’ back and forth for a century
>>KEYNES: I want to steer markets,
>>HAYEK: I want them set free
There’s a boom and bust cycle and good reason to fear it
>>KEYNES: I made my case, Freddie H Listen up , Can you hear it?
>>HAYEK: I’ll begin in broad strokes, just like my friend Keynes His theory conceals the mechanics of change
That simple equation, too much aggregation Ignores human action and motivation
And yet it continues as a justification For bailouts and payoffs by pols with machinations
You provide them with cover to sell us a free lunch Then all that we’re left with is debt, and a bunch
If you’re living high on that cheap credit hog Don’t look for cure from the hair of the dog
Real savings come first if you want to invest The market coordinates time with interest
Your focus on spending is pushing on thread In the long run, my friend, it’s your theory that’s dead
So sorry there, buddy, if that sounds like invective Prepare to get schooled in my Austrian perspective
We’ve been going back and forth for a century
>>KEYNES: I want to steer markets, >>HAYEK: I want them set free
There’s a boom and bust cycle and good reason to fear it
>>HAYEK: Blame low interest rates. >>KEYNES: No… it’s the animal spirits
The place you should study isn’t the bust It’s the boom that should make you feel leery, that’s the thrust
Of my theory, the capital structure is key. Malinvestments wreck the economy
The boom gets started with an expansion of credit The Fed sets rates low, are you starting to get it?
That new money is confused for real loanable funds But it’s just inflation that’s driving the ones
Who invest in new projects like housing construction The boom plants the seeds for its future destruction
The savings aren’t real, consumption’s up too And the grasping for resources reveals there’s too few
So the boom turns to bust as the interest rates rise With the costs of production, price signals were lies
The boom was a binge that’s a matter of fact Now its devalued capital that makes up the slack.
Whether it’s the late twenties or two thousand and five Booming bad investments, seems like they’d thrive
You must save to invest, don’t use the printing press Or a bust will surely follow, an economy depressed
Your so-called “stimulus” will make things even worse It’s just more of the same, more incentives perversed
And that credit crunch ain’t a liquidity trap Just a broke banking system, I’m done, that’s a wrap.
We’ve been goin’ back and forth for a century
>>KEYNES: I want to steer markets, >>HAYEK: I want them set free
There’s a boom and bust cycle and good reason to fear it
>>HAYEK: Blame low interest rates. >>KEYNES: No it’s the animal spirits