What are Keynesian economics and Austrian Economics?



What are Keynesian economics and Austrian Economics?

In: Economics

Keynesians believe that you can use monetary or regulatory policy to more positively influence the overall direction of the market in aggregate over time than free markets left to their own devices.

Austrians believe that economists should base policies on human psychology and subjective individual determination of value rather than statistics and game theory.

Keynesians believe economic equilibrium is a universal state. Austrians believe it’s a state of mind.

Keynesian economics is called that because it refers to the ideas John Maynard Keynes had about how national economies work.

Austrian economics is called that because the people who originally came up with it were Austrian.

Keynes (pronounced Kanes) believed that free markets were not the solution to everything, and that governments could spend their way out of recessions and depressions. His school is still capitalist, but with direct government intervention.

Later followers of the Austrian school led to the development of the anti-regulation, governments must keep their hands off the economy that was later morphed into Reaganomics. This libertarian philosophy of economics (“lassez-faire” or “anything goes”) underpins almost all Republican Party thought, essentially since Reagan won the argument over Bush, who famously called Reaganomics “voodoo economics.” An important “popular” (here, meaning not insufferably academic) book in the Austrian school is The Road to Serfdom, by Friedrich A. Hayek.

There is a third school, led by University of Chicago economist Milton Friedman. He and his “Chicago School” comrades were strongly opposed to social programs like Social Security or Nationalized Healthcare. They are the current dominant force in American economic policy, specifically the way that the “Chicago School” views on unemployment and inflation are the actual policy of the Federal Reserve Bank. This school believes that everyone having a job (“full employment”) would be bad for the economy because it believes that full employment would lead to runaway inflation. Instead they posit that there is a “natural” rate of unemployment. They have issued various predictions over the years about what that natural unemployment number is, and although inflation has remained stable for years (really until just now) and unemployment has consistently been well under this “natural rate” their ideas are still accepted by so-called mainstream economics.

Finally, recently a new competing theory has emerged about how all this works, called Modern Monetary Theory. This is closely associated with American “left-wing” politics and specifically with Bernie Sanders and the 21st century progressives. Stephanie Kelton is the economist most closely associated with this theory, and her book The Deficit Myth is a well-written mass market introduction to Modern Monetary Theory.

Both the Austrian school and the Chicago school are strongly opposed to the economic theories of Karl Marx.

Any errors are mine and unintentional.

I don’t know too much about economics but I believe Austrian economics are from Austria and it’s a very libertarian style of capitalism (similar to laissez-faire) I also believer it is like a polar opposite to the idea of marxism