Hayek on why Keynesian macroeconomics initially became popular and stayed popular despite eventual empirical failure

31 Jan 2015 8 Comments

Image by Jim Rose

8 Comments (+add yours?)

  1. nottrampis
    Jan 31, 2015 @ 10:18:18

    So Hayek didn’t understand you only use fiscal policy when there is a liquidity trap.
    not bright was he!

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  2. nottrampis
    Jan 31, 2015 @ 11:44:04

    A liquidity trap is when monetary policy is no longer working properly i.e when you have deflation or interest rates are at the zero bound.
    It is only under these conditions Keynes advocated fiscal policy. Otherwise you use monetary policy.

    He has been proven 100% correct.

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  3. Jim Rose
    Jan 31, 2015 @ 18:35:15

    but see https://ideas.repec.org/p/fip/fedmsr/331.html

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  4. nottrampis
    Feb 01, 2015 @ 12:46:05

    sorry I don’t get it.

    If you have a depression and there is no deflation because of deficient demand so you only need monetary policy to overcome it.

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    • Jim Rose
      Feb 01, 2015 @ 12:52:01

      The re-blog is about the mythical link between deflation and a depression.

      Breathless journalists and politicians get into a moral panic over deflation because they fear a recession because of the experience of the 1930s of simultaneous deflation and a depression, which was a spurious correlation.

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  5. nottrampis
    Feb 01, 2015 @ 15:52:47

    It doesn’t explain how Hayek got Keynesian policy so wrong.

    Every country that had a depression in 2008 had deflation! It could depend on the Depression.

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