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Keynes vs. Hayek

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Keynes VS. Hayek

John Maynard Keynes developed an economic theory that argues, the government can borrow money. Then spends the means to create jobs and purchasing power. The concept is based on the circular flow of money and the government should step in and increase the money supply or start buying things themselves. Trying to balance the budget during a poor economy would make matters worse not better. The government Keynes beliefs were the government would spend more during a poor economy and cut back during better ones.
Friedrich Von Hayek theory states that the problem is under central planning, and that there is no financial calculation that would help make the right resource to spend money. Under his theory, Central planner would make a decision based on accurate information, not economic ones. Less government intervention and more financial freedom are Hayek beliefs to turn around a poor economy.
As I read into the two theories, I am finding out that the US economy is most like the Keynes. One point I believe this is because of the massive deficits that are government is occurring. Another example is because Keynes theories consider tariffs and bailout, which we have seen this over the last few years in the auto industries and the financial district.
I believe in Hayek theory of the free trade and letting the economy do its part. In my opinion when the government plays a prominent role in the economy, then it is going to be the best decision for the government, not the people. The process takes longer for recovery, but the economy is stronger because there is less manipulation of Money. Bruce Caldwell states “ In Hayek’s theory, problems start when the market rate of interest is held too low for too long. This always politically popular policy leads to malinvestment—too many investment projects get started that cannot ultimately be sustained. When people realize what has happened, investment spending collapses and a recession begins.” (Caldwell,2011) I believe this to be true in Keynes theory. The circular flow of money does have it’s high and lows, and the only way to fix the lows is through inflation.

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