The Instigator
GarretKadeDupre
Pro (for)
Winning
4 Points
The Contender
InVinoVeritas
Con (against)
Losing
0 Points

The Austrian Model Of Economics Is Better Than The Keynesian Model

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Post Voting Period
The voting period for this debate has ended.
after 1 vote the winner is...
GarretKadeDupre
Voting Style: Open Point System: 7 Point
Started: 12/10/2013 Category: Economics
Updated: 3 years ago Status: Post Voting Period
Viewed: 1,735 times Debate No: 42068
Debate Rounds (5)
Comments (25)
Votes (1)

 

GarretKadeDupre

Pro

First round is acceptance.
InVinoVeritas

Con

I accept. Good luck!
Debate Round No. 1
GarretKadeDupre

Pro


Thanks for accepting!



My position is the following:



The Austrian School of Economics is better than the Keynesian School of Economics.



Economies go through cycles of booms and busts. Booms are periods of economic growth, while busts are the opposite.



The Keynesian School says that busts are bad and must be prevented by government intervention in the economy.



The Austrian School says that busts are an unavoidable part of the boom/bust cycle, and government intervention that tries to prevent busts will only postpone them and have them arise even worse than they would without such intervention.



I will now provide an analogy using a true story that isn't related to economics. I didn't come up with this analogy; the original version can be found in my references.1 I hope this makes things easier to understand.




Forest Fire Analogy



In an effort to prevent forest fires, the government devised elaborate plans to suppress any and all fires completely. This worked for a time, until it was realised that all that was being accomplished was the suppressing of inevitable, even bigger, fires.



The explanation?



When the natural course of things were allowed to pass, many small fires occurred. However, they quickly burnt themselves out after consuming the underbrush, and didn't reach the tree tops. After these fires were suppressed, the underbrush (fuel for the fire) grew unnaturally thick and high. Eventually, a little fire that would have been self-limiting in the past, now grew wildly out of control, scorching the tree tops and causing massive devastation.



The mistake was acknowledged, and the intervention was reversed.




In this analogy, busts are forest fires, and the attempt to prevent them is government intervention into preventing busts in the economy.



The Keynesian School views busts as bad, and demands that they be suppressed. However, since a future bust is inevitable, and will be even bigger due to intervention, the Keynesian School of thought worsens the very thing it intends to prevent.



The Austrian School of thought is more realistic since it realizes that booms and busts are inevitable, and calls for allowing them to follow their natural course without government intervention.



That is why the Austrian School of Economics is better.



1http://www.peakprosperity.com...


InVinoVeritas

Con

In this debate, I will be arguing that the Austrian School's model is not better than that of the Keynesian School. Therefore, if one reaches the conclusion, based on the evidence provided in this debate, that (1) the Keynesian model is better or (2) that both models are equally good, then the opponent has failed to defend the resolution. Furthermore, based on the nature of the matter being debated, the burden of proof in this debate will be shared (and if my opponent wishes to contest this, he can bring it up in the comments section.)

In 1929, the American public witnessed the beginning of what would be a difficult, decade-long economic struggle: the Great Depression. In the United States, unemployment soared to 25% and public expenditure dropped drastically. [1] The reason for this lack of expenditure, as Keynes argued, is that investors were less willing to place money into industry [2]; businesses seek to invest in order to receive a return, and when consumption is very low (as it was during the Great Depression), no business would be willing to invest in increased production in the future. For this reason, government intervention is necessary to recover in economy in big bust situation. By expanding government-run investment (while lowering prices), more money is poured into the market, and this capital would increase general consumption and, in turn, stimulate a desire to invest in future production. Much of FDR's New Deal policy was largely grounded in Keynesian theory, and through government investment and the stimulation of public expenditure, the nation recovered from the Great Depression; in fact, as economist Paul Krugman has argued, the New Deal policy was less effective when it was first enacted because there was not enough government spending [3]. There is little reason to believe that the devastating effects of the Great Depression could be easily reversed without the government intervention that took place--or if all government institutions were removed from the market, as many Austrians would assume. Indeed, unlike many of the Austrian School's theories, the Keynesian Model has been tested and proven effective through historical and empirical evidence. Surely, some forest fires (representing busts, in my opponent's analogy) go away naturally, but some destroy entire habitats and walks of life; major busts must be "extinguished" by government investment and stimulation of consumption, because a big bust is a self-perpetuating path toward economic instability that cannot reverse itself.

The Austrian School proposes that, during a state of recession, we avoid intervention and we let the banking system collapse, let businesses resist investment, and let the unemployment rate soar. There is no empirical evidence that such a system would work, and Austrian economists have a track record of making predictions that never come true because of their irrational fear of any government intervention in the monetary market. This may be why a number of very influential libertarian thinkers, including economist Milton Friedman, renounced the "natural" business-cycle theory of the Austrians. Austrian models are grounded in theoretical propositions (such as full employment) that simply cannot be used to provide reasonable evaluations of economic reality.

---

[1] http://www.econlib.org...
[2] http://books.google.com...
[3] http://www.nytimes.com...
Debate Round No. 2
GarretKadeDupre

Pro

My opponent says, "the Keynesian Model has been tested and proven effective through historical and empirical evidence." His supporting evidence for this claim is the Great Depression.

However, even the Chairman of the Federal Reserve acknowedges that it was government intervention itself that caused the Great Depression in the first place! Allow me to quote Ben Bernanke, speaking in honor of Milton Friedman's 99th birthday:

"
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve System. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it."1 (emphasis mine)

The "we" refers to the Federal Reserve, the instrument of the government intervention that my opponent is defending.


So much for the Keynesian Model being "
tested and proven effective through historical and empirical evidence"; The Fed itself admits that it was the cause of the Great Depression.

My opponent says that "
a big bust is a self-perpetuating path toward economic instability that cannot reverse itself", but there is no evidence for this.

The Austrian School Of Economics is better because it allows for busts to follow their natural course of dying on their own.

The Keynesian School seeks to prevent them altogether, but as seen in my opponent's example of the Great Depression, it only makes them worse.

1http://www.federalreserve.gov...

InVinoVeritas

Con

The cause of the bust that slowly became the Great Depression, according to Keynes, was that people started hoarding money when times became tough... but times become tougher when everyone started hoarding money instead of investing. In order to "re-stimulate" the circulation of capital that signifies a healthy economy, the government has to start spending.

And you reference how Ben Bernanke agreed with Friedman about the Fed's role in causing the Great Depression. However, while the Austrian School's explanation also blames the Fed, it blames the Fed for a different reason. It claims that the Fed caused the Great Depression by INFLATING the money supply, while the Monetarists (such as Friedman) claim the opposite... that monetary contraction (the Fed's limiting of the monetary supply) and the DEFLATION that followed caused the Great Depression. [1] The Austrian School accuses the same culprit that Bernanke and Friedman blame... but it blames the Fed for the OPPOSITE REASON.

Rothbard clearly stated that the proper course of action for the government after the Great Depression had started was to employ a laissez-faire policy--or, in other words, NOTHING. That's right; he expected the market to correct itself. This is, of course, market fundamentalism at its finest. [2] Oh, and that gold standard currency system that Austrians are so in favor of? Well, that contributed to the Great Depression, according to a number of economists--including Friedman. [3]

The views of the Austrian School suck.

Thank you.

[1] http://en.wikipedia.org...
[2] http://mises.org... (pg 19)
[3] http://tinyurl.com... (video)
Debate Round No. 3
GarretKadeDupre

Pro

According to the Keynesian Model, as my opponent says,

The cause of the [...] Great Depression […] was that people started hoarding money when times became tough

Yes, but times became tough because of the inflation from the Roaring 20s, which itself was caused by the Federal Reserve drastically reducing interest rates.

So the source of the problem can be traced back to the Federal Reserve, back to the same government intervention that the Keynesian school argues for!

If only the forest fire caused by the Panic of 1908 had been left alone to run it's natural course (as the Austrian School supports) then stability would have eventually returned. Instead, the Fed (the embodiment of the Keynesian Ideology) intervened, stumping out this little fire by reducing the interest rates.

This created the bubble of the Roaring 20s, and postponed the inevitable Great Depression.

When the gigantic bust finally reared it's head, Keynes' school calls for yet more Fed intervention, despite the fact that it was Fed intervention that caused the entire ordeal in the first place!

My opponent points out how Bernanke and Austrians blame the Fed for the Great Depression for different reasons, yet it is very telling that the Austrians and the Chairman of the Federal Reserve agree on the most important point:

The Fed caused the Great Depression! The Keynesian's instrument, around which revolves their entire ideology, carries the blame for causing the very problem that Keynesian's want to prevent!

My opponent says that “Rothbard clearly stated that the proper course of action for the government after the Great Depression had started was to employ a laissez-faire policy--or, in other words, NOTHING. That's right; he expected the market to correct itself.

Yes, that is right. A problem caused by the Fed cannot be fixed by the Fed; in fact, it can only be made worse. Remember that the Fed, in it's attempt to stump out the economic “forest fires” of the 1910s, merely reserved fuel for the huge “wildfire” of the Great Depression, which then blazed wildly out of control.

The Keynesian School of Thought has inspired the Great Depression, and promotes the same tactics that made it worse than it would have been.

The entire goal of Keynes' school is to avoid busts, but busts have been popping up throughout it's entire history. After over half of a century of experimentation, Con's ideology has failed to prevent both the Dot-com bust1 and the Housing Bust2, among others.

The Austrian School is better because it calls for a stop to this madness.

My opponent tossed in some reference to Friedman bad-mouthing the Gold Standard, but that has no relevance to anything, given that Friedman doesn't even subscribe to the same economic model that I'm arguing for.

As for Con's closing remark, all I have to say is...

So much intelligent, very debate skill, wow.


1 http://www.bls.gov...

2 http://www.bls.gov...



InVinoVeritas

Con

The issue that caused the Great Depression was decreased capital investment. The problem that caused the Great Depression was a lack of government intervention. By not getting involved, the government exacerbated the original decline and allowed a self-perpetuating failure of the market get worse and worse. By increasing spending, the government has the capacity to re-stimulate expenditures and encourage investment; under the Austrian system, this would not happen. Austrians would prefer that the entire market collapse and eventually somehow rebuild itself, causing immeasurable suffering through high unemployment rates and limited production. The Keynesian plan ended the Great Depression that was originally caused by a lack of early government intervention in the marketplace, and it ought to be praised.

The Great Depression was a "forest fire" that lasted for around a decade and showed no signs of rapidly improving by itself. Instead, millions of people with families struggled to survive and business cowered in fear at the prospect of investing in anything, in fear of losing even more than they had already lost. The Austrian ideology of market self-rectification does not work in practice. We need to give credit to Keynes for preventing more unnecessary suffering and hardship for the common man, woman, and child.

And while the Federal Reserve policies may have played a role in causing the Great Depression, there were other huge factors that Austrians always overlook: poor management of local banks, bad stock investments that led to a stock market crash, and a drop in international trade (the Smoot-Hawley Tariff Act of 1930.) [1] And my opponent thinks that the Great Depression couldn't have been stopped by the Fed... But it was. Keynes' recommendations were implemented, and the Federal Reserve policies helped stop the Great Depression. The Austrian alternative, of course, would have been to allow the market to collapse--or, to go with my opponent's analogy--to let the forest burn down.

There is a point when a forest burns down and there is no more habitat left. Recovery can come in small patches, but immeasurable damage can be done that can destroy the forest for generations and generations. During the Great Depression, the market was crashing to the ground until the government took action through Keynesian policies. And the cost of letting it fall to the ground--that is, the cost of the Austrian vision--would have been dire, to say the very least.

And in case my opponent was wondering, the gold standard is relevant to the matter of the Great Depression. The gold standard, which most Austrians love so dearly, was incredibly burdensome as the international market crashed during the Depression. Countries ran away from the gold standard, and those that ran first (e.g., Great Britain) recovered before those that escaped from the gold standard after. [2]

Overall, the Austrian School's views seem comical when juxtaposed with real, empirical facts. The Keynesian School has provided immense insights into the workings of the economy and the proper role of government therein. By following Keynes, we can better understand how to respond to economic trends and prevent disasters through external stimulation. A self-sustaining market that builds itself up from the ashes is a bizarre theoretical fantasy, like much of Austrian economics.

---

[1] http://en.wikipedia.org...
[2] http://en.wikipedia.org...
Debate Round No. 4
GarretKadeDupre

Pro

Con says that “The issue that caused the Great Depression was decreased capital investment” but doesn't deny that it was the Fed that directly caused this as I already explained, so I assume he concedes that point.

Con also says that “The problem that caused the Great Depression was a lack of government intervention” but forgets that the Fed, a.k.a. Government intervention, actually caused the Great Depression like I also explained previously!

Con has resorted to ignoring my arguments from the previous round and just making claims to the contrary without substance. He hasn't rebutted my arguments so I see little need to rebut his all over again.

Strawman #1

Con strawmans the Austrian School by claiming that “Austrians would prefer that the entire market collapse and eventually somehow rebuild itself.” This isn't true; Austrians would permit the market to suffer (not fail), then rebound all on it's own. The Great Depression was a market collapse during the reign of the Fed (and caused by it) so it would seem that it's actually the Keynesians who prefer entire market collapse.

Another claim from Con is “The Keynesian plan ended the Great Depression that was originally caused by a lack of early government intervention in the marketplace” but for the umpteenth time, that's incorrect as I already demonstrated! Early government intervention CAUSED the Great Depression!

Con goes on to describe how “The Great Depression was a "forest fire" that lasted for around a decade and showed no signs of rapidly improving by itself.” Aha, no sign of RAPIDLY improving by itself. But improve on it's own IT WOULD, as my opponent concedes! The only reason it wouldn't improve as fast as most would like is because this was no natural bust; this was an artificially induced bust caused by the Fed!

Poor management of local banks” and “bad stock investments” were a result of the Fed's lowering of interest rates. So here we are again, seeing how the Fed caused the Great Depression regardless of which angle we view it from.

The source of the magnitude of the Great Depression can always be traced back to the Fed.

Con says that I don't think the Great Depression could be stopped by the Fed, but that's a strawman! I never said that. However, that's not much of a feat, considering that the Fed caused it in the first place. I could steal everybody's money and then give it back to them, then point out how I rescued everybody's fortunes and paint myself as a hero, but this doesn't mean I should be put in charge of regulating people's wealth.

Strawman #2

My opponent says “The Austrian alternative, of course, would have been to allow the market to collapse--or, to go with my opponent's analogy--to let the forest burn down.” This is another strawman! If you go back and see my analogy from a previous round, you will see how I compared letting busts run their natural course to a SMALL FIRE, not letting “the forest burn down”!

Con says “Overall, the Austrian School's views seem comical when juxtaposed with real, empirical facts.” In reply, I must ask, what facts? The fact that the Great Depression was caused by Keynesian monetary policy through the Fed?

Here is a final quote from Con: “A self-sustaining market that builds itself up from the ashes is a bizarre theoretical fantasy, like much of Austrian economics.

No, that's not what any of Austrian economics is. What Keynesian economics is, though, is a bizarre theoretical fantasy of a few bankers creating money out of virtually thin air, with practically no responsibility, and expecting the economy to benefit from this.

One only needs to look at the state of the economy to see this.


Don't let the banker win. Vote for me!

InVinoVeritas

Con

I concede that the Fed played in a role in the Great Depression, but not as huge of a role as what the Austrians claim. Also, the Austrians clearly understate the other factors (that I described in the prior round) that contributed to the Great Depression; my opponent fails to counter these other major factors--so I assume that he has dropped them. By not refuting these major alternative factors, my opponent has failed to explain how the Fed played the huge role that the Austrians are so convinced it played.

And in regards to Strawman #1 and #2, the Austrians have no limit to market "suffering." A market can collapse (as it was on the verge of doing during the Great Depression), and an Austrian would just say that the market can somehow recuperate--when, in reality, there in no evidence that a Great Depression economy can recover on its own--and the results of the government inaction prior to the New Deal only show that government intervention is critical. The Austrian view overlooks reality; a market failure has real consequences that can lead to no hope of recuperation.

The Keynesian School is considered a mainstream school of thought, while the Austrian School is considered a heterodoxical school of thought. The Keynesian School emphasizes empirical data, while the Austrian School believes in a "logical," reductive system of analysis that ignores real numbers. The primary reasons for market "busts" is private malinvestment... and this oftentimes leads to a self-perpetuating cycle of non-investment that could lead to market collapse, as unemployment rises. Keynes proposed fixing this problem by stimulating the economy through government spending, and it worked. History supports the Keynesian approach, while the only thing supporting the Austrian School is a set of obscure, pseudo-scientific books regarding theory.

Debate Round No. 5
25 comments have been posted on this debate. Showing 1 through 10 records.
Posted by ModerateLiberalism 3 years ago
ModerateLiberalism
We haven't ditched Keynesian economics, but if you crunched the numbers you would've found that a much larger stimulus than the ARRA was necessary to actually escape a recession. Keynesian theory has an immense amount of scholarly backing over the past century in many countries, and it remains to date the most effective and well-backed school of thought in both universities and policy-centers.
Posted by InVinoVeritas 3 years ago
InVinoVeritas
lit.wakefield, he did... but I think he was serious.
Posted by lit.wakefield 3 years ago
lit.wakefield
@InVinoVeritas He claims that we have ditched Keynesian economics which clearly ignores both the monetary and fiscal policy of the US in recent years. Expansionary monetary policy with the stimulus when Obama came into office, and the fed is very actively increasing the money supply to keep the interest rates artificially low. Am I missing something here?
Posted by GarretKadeDupre 3 years ago
GarretKadeDupre
Yea and Nazi experimentation has contributed immensely to the field of medicine, but it doesn't mean we should follow their methods.

Yea I know, such Godwin's Law, much Hitler, wow.
Posted by InVinoVeritas 3 years ago
InVinoVeritas
lit.wakefield, I don't think he was being sarcastic.

Really, the Keynesian model has contributed immensely to economic theory. It's just that Keynesian prescriptions have been off.
Posted by lit.wakefield 3 years ago
lit.wakefield
@visini I assume that you are being sarcastic? It's hard to tell sometimes.
Posted by visini 3 years ago
visini
This is a no brainer, Keynesian Economics is the best kind of economic. It was used to get the US out of the Great Depression. It created the greatest economic expansion in US history (1960s). It was the greatest system that we have had. We are on the Supply Side now, and Northern Europe is on Keynesian Economics, look at their economies. Look how great they have it. If only we would have kept Keynesian economics instead of ditching it in the 1970s.
Posted by lit.wakefield 3 years ago
lit.wakefield
I thought that the Austrian School said that the boom/bust cycle was caused by Keynesian policy (false flags sent to companies about savings due to the Fed artificially lowering the interest rate). Am I incorrect on this?
Posted by GarretKadeDupre 3 years ago
GarretKadeDupre
Ah ok.
Posted by InVinoVeritas 3 years ago
InVinoVeritas
The Austrian School promotes a more "rationalist" approach, which focuses more on axioms and logic. The Chicago School promotes a more "empiricist" approach, which takes into account data collection and analysis. The biggest difference is general methodology.
1 votes has been placed for this debate.
Vote Placed by iamanatheistandthisiswhy 3 years ago
iamanatheistandthisiswhy
GarretKadeDupreInVinoVeritasTied
Agreed with before the debate:--Vote Checkmark0 points
Agreed with after the debate:--Vote Checkmark0 points
Who had better conduct:Vote Checkmark--1 point
Had better spelling and grammar:--Vote Checkmark1 point
Made more convincing arguments:Vote Checkmark--3 points
Used the most reliable sources:--Vote Checkmark2 points
Total points awarded:40 
Reasons for voting decision: This debate has to go to Pro, as he showed and Con agreed that the Great depression was to blame on the Fed and Keynesian economic models. I think this debate was impossible for Con to win as Pro could point out multiple negatives relating to real life, whereas Con had a problem proving an ideal model would be bad. I give Pro conduct points due to Cons offhand remark in round 3. Grammar and sources are tied.