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Could the solution to the global economic crisis be in a rap video?

August 30, 2015

banking

Image Kenteegardin

So the recession apparently ended 2 years ago but with all depressing news stories about costs increasing and people struggling to pay their bills, it’s clear that the economy is a long way from being stable.

Because we are such financial geeks, this got us thinking about the best way to save the global economy. For help with this topic we decided to turn to two of the most famous economists of the 20th century; John Maynard Keynes and F. A. Hayek. Although both are now deceased we’re sure they’d have something to say about the current global financial crisis.

Keynes and Hayek represent two strongly opposing theories for economic recovery. Keynes’ theory focuses on boosting aggregate demand while Hayek believes that we must save to invest.

Hayek promotes adequate spending and a return to sustainable production. If the governments had followed Hayek’s guidance then they would have let the banks which made risky investments, and couldn’t meet their debt obligations, fail and close down. However some of these banks were saved with government funding which has meant that the tax payer’s money was used to plug the hole in the balance sheets of toxic banks and quantitative easing efforts failed.

On the other hand the school of Keynes teaches that you cannot cut your way out of a recession and instead you must grow your way out of it. His theory is based on the Great Depression of 1929-1932 and states that the level of activity (output and employment) depends on the level of aggregate demand or spending power. So in effect if you want to increase the output of the economy then you should increase the spending power. Hayek believed that such fiscal stimulus policies just made things worse.

Feeling a bit lost? Well don’t worry because Keynes and Hayek have come back to life to help save the global economy. And to help us understand what they are talking about they have summarised their ideas in a trendy rap video. . .

So what do you think after your rap tutorial from the world’s greatest economists, which theory is best for economic recovery?

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