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Macro Rap

By Matthew Yglesias on January 26, 2010 at 10:01 am

"Macro Rap"

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This Keynes v Hayek battle rap explaining competing perspectives on the boom-bust cycle is definitely funny and pretty informative to boot:

That said, it’s worth saying that this presents a somewhat oddly polarized view of the issue. The Hayek character presents what I think “real business cycle” types really think. But the Keynes character emphasizes as the sole alternative what are really the wackiest Keynesian suggestions (dig ditches, start wars) as remedies for the most severe possible problems. But the abstract idea that stabilization needs to emphasize creating stable nominal spending flows doesn’t normally involve any especially weird ideas. Nor does it normally involves any specific leftwing ideas.

The rappers have Keynes saying, for example, that he wants to “steer markets” whereas Hayek wants to “set them free.” Which is true to those two guys’ political perspectives. But Alan Greenspan is a serious free market guy and he, like Keynes, thinks the government should respond to economic downturns by boosting spending via lower interest rates. Milton Friedman thought the same thing. Ben Bernanke, conservative Republican, has the same view. And it’s perfectly coherent to both think that fiscal stimulus is useful and also that government spending is almost always wasteful—you just need stimulus that’s heavily weighted toward tax cuts.

Conversely, Karl Marx was a bit of a real business cycle theorist who would agree with the “Austrian” perspective that busts and mass unemployment are just part of the capitalist process. That, to Marx, was one reason to get rid of capitalism. And to Keynes, checking the Marxist attack on capitalism was one reason to pursue stabilization policy. Last I think it’s perfectly open to the Keynesian to concede that there is some “real,” structural element to unemployment while merely denying that the business cycle is all real or totally resistant to remediation.

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