How does Economic Policy affect our lives? Recommended Reading.
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May 2, 2024Most people think of economics as an obscure science of complex mathematical formulas employed by dismal academics who rarely agree on anything. Indeed, Irish playwright, George Bernard Shaw, quipped that if all the economists in the world were laid end-to-end, they’d never reach a conclusion.
It’s certainly understandable why people might think about economists in that way. But it’s a regrettable conclusion because it significantly underrates the impact of economics (and of academic economists) on our daily lives.
This impact is described by British journalist, broadcaster and author, Nicholas Wapshott, in his outstanding 2011 work Keynes Hayek – The Clash That Defined Modern Economics. Wapshott outlines in considerable detail the (respectful) disagreements between two 20th century academic rivals, British economist, John Maynard Keynes, author of The Economic Consequences of the Peace (1919) and the lesser-known but no less influential Austrian economist, Friedrich Hayek.
Their approaches to economic policy were starkly contrasted in the 1930s when Keynes proposed that the way out of the Great Depression was for Governments to increase spending when private businesses could not do so due to the economic downturn. Hayek took the opposite approach, suggesting that increasing Government spending in this circumstance was both dangerous and pointless.
As it turned out, “Keynesian economics”, which was identified with a greater level of Government spending and intervention designed to control unemployment and minimise economic turmoil, dominated Government policies in western economies for many decades. However, with the onset of “stagflation” (economic recession combined with inflation) in the 1970s, Hayek’s “free market” policies, identified with smaller Government, lower taxes and deregulation of businesses, gained ascendancy, especially amongst libertarian economists and political leaders in the Anglo-sphere, including Australia.
Nevertheless, even in the 21st century, Keynesian “big Government spending” policies have been reluctantly employed by some free market supporters, for example, to dig the world out of the Global Financial Crisis in 2008-09. And in 2020-21, the same policies were used to mitigate the otherwise catastrophic economic impact of the Covid-19 pandemic.
The academic and political disputes between free market proponents and the supporters of active Government intervention have raged for nearly 100 years and will continue to do so. The resultant economic policy prescriptions (for example, in our annual federal Budget) impact the daily lives of millions of ordinary people who have never heard of Keynes and Hayek.
So if you’d like a better understanding of the discipline of economics and how academic economists can change our lives (for better or for worse) a good starting point is Keynes Hayek – The Clash That Defined Modern Economics. To whet your appetite, you may wish to first view the short YouTube videos created by some economist fans of Keynes and Hayek whereby they imagine their theories and disagreements in the form of rap battles.
