Keynes is the half brother of Marx. They both believe that the economy is a machine that can be described in equations and managed by a few intellectuals.
Hayek believed that the markets would eventually do what is best. Market failures had to be addressed by light touch regulation.
An economy is the sum of imperfect and boundedly rational actors. Like a bunch of marbles they need to find their own equilibrium. The government can only provide a super-structure within which they stabilize.
Commanding heights of the economy
Over the course of the 20th century Hayek has won the battle of ideas over who has to control the commanding heights of the economy
http://www.youtube.com/watch?v=jEReH2HDUWs&feature=relmfu
But has he won the battle conclusively? Why have governments run up deficits? Is this not a sign of an inflated government presence?
The real problem today is not the risky lending practices of the bank (market failure). A real estate bubble might have caused a recession for a year but this depression has happened because of the “Debt Grenade”. The real estate crash was only the light that triggered the grenade.
2 key features of a soviet eraesque”planned economy” are Price controls and Profit not being the major objective. An similar parallel can be drawn in the US economy today
- Price controls – Treasury Prices being manipulated through monetary operations
- Non-profit motive – An expanding government to ensure consumption and demand. Industry has not been allowed to go through the usual business cycles of contraction and expansion. The goal is not sustainable profit but to insulate the populace from business cycles.
HAYEK is fashionable but KEYNES still wins elections!