Keynesian vs. Austrian Economics: Dominance in U.S. Government and Private Sector

Consider the anecdote of the economics professor and student on campus. The professor’s immediate response about a 100 bill lying on the sidewalk provides a fascinating insight into how the private sector operates in relation to economic theory. The professor’s remark highlights the inherent distrust business people have in economic theories, often viewed as abstract concepts that can impede their natural, profit-driven behaviors. The market's efficiency is indeed enhanced when these factors drive business, rather than theories.

However, the government often showcases a different attitude towards economic theories. Politicians and government officials are frequently overconfident in their ability to 'outsmart' the market. This overconfidence can stem from a belief that they have superior knowledge or that they can rectify market inefficiencies through policy interventions. Yet, this approach often overlooks the inherent complexity and unpredictability of the market.

Economic theory, when applied to the U.S. government and private sector, reveals a significant divide between Keynesian and Austrian economics. The prevalence of Keynesian theories in governmental and corporate settings is largely due to the educational background of key policymakers and corporate leaders. Most universities are heavily influenced by Keynesian thought, thereby shaping the professional mindset of future government officials and business executives. Interestingly, this shift towards Keynesian economics can also be traced back to self-interest; both government and large corporations heavily rely on the Credit Money of the Federal Reserve for their operations. Consequently, it is in their interest to support and perpetuate these economic policies.

Keynesian Economics and Market Support: Keynesian economics advocates for active government intervention to stabilize the economy and support growth. This theory gained prominence during the Great Depression, leading to significant government spending and monetary policies aimed at increasing liquidity and consumption. The U.S. government’s approach is closely aligned with Keynesian principles, which is evident in its extensive use of fiscal and monetary policies. The reliance on Credit Money, facilitated by the Federal Reserve, is a key factor in this alignment.

Austrian Economics: The Perspective of Market Efficiency: In contrast, the Austrian School of economics emphasizes the importance of market efficiency and opposes unnecessary government intervention. Austrian economists argue that government policies often create distortions in the market, leading to inefficiencies and disruptions. They believe that market forces should be left to naturally regulate themselves, without external interference. The spirit of entrepreneurship and innovation is better nurtured in such an environment. However, in the context of U.S. government and private sector operations, the influence of Austrian economics remains relatively limited.

Modern Followers of Milton Friedman: It's worth noting that even modern followers of Milton Friedman, the renowned economist from the “Chicago School,” can be seen as Keynesians in monetary policy. Milton Friedman, despite his reputation as a critic of excessive government intervention, argued that government should actively manage money supply to prevent economic fluctuations and crises. His support for creating credit to prop up economic bubbles, as seen in the 1929 crash, highlights a Keynesian approach to monetary policy. This alignment with Keynesian principles often serves the interests of financial institutions that profit from credit bubbles.

In conclusion, the dominance of Keynesian economics in the U.S. government and private sector is multifaceted. While the private sector is more aligned with laissez-faire principles, the government often adopts Keynesian policies to manage and stabilize the economy. This alignment can be attributed to the influence of Keynesian thought in educational institutions and the intricate relationship between government and corporate interests. Understanding the nuances between Keynesian and Austrian economics is crucial for evaluating the effectiveness of economic policies in the U.S.