Speaker Sheds Partial Light on Lousy Economy

DALLAS – Economics is often called the “dismal science” because it does a pretty good job pointing out the worst-case scenario of things. It could also be considered the “boring science,” as it seems to focus on little more than figures ranging from gross domestic product to unemployment.

But at NAREIT’s annual convention REITWorld 2011, Nicholas Wapshott, guest speaker at the event’s opening luncheon on Nov. 15, proved that economics is neither boring nor dismal. Thanks to mid-20^th century economists John Maynard Keynes and Friedrich von Hayek, macroeconomics came into being – and what was known as the fight of the century ensued. That unresolved fight, Wapshott said, helped lead us into the economic mess we’re in today.

Wapshott would know about Keynes, Hayek and economics – he’s a broadcaster who has made regular appearances on MSNBC, PBS and Fox News. Perhaps more pertinent, he’s the author of The Clash that Defined Modern Economics which starred – you guessed it – Keynes and Hayek.  Keynes, as just about everyone knows, favored government intervention, when necessary. Hayek, however, was a strict monetarist, who felt that markets needed to have free reign. Because both economists were scrappy and passionate about their views, their frequent clashes were well-documented.

“These two economists were like championship boxers; 80 years ago this fall, huge disagreements took place between two mighty fighters,” Wapshott commented. The 1930s saw, of course, an embracing of Keynesian economics, which lasted well into the 1970s, during which the monetarists had their way after the economy ground to a halt thanks to inflation and stagflation. The followers of Hayek then reigned supreme until 2008.  Since that time, Keynesian economics has moved back to the forefront. Well, sort of.

“The last two years have seen a crisis of confidence in a system that made us all wealthy, and that seemed to work so well,” Wapshott said.

The irony in Keynesian theory, however, is that Keynes never felt that government should kick in funds for everything – just things that the private sector wouldn’t handle. And once people were employed and were consuming, then the government needed to bow out. Another irony is that Hayek, the master of the free-market theory, never held a job in the business world a day in his life – he was a pure academician. If the two had been able to resolve their differences 80 years ago, Wapshott said, there wouldn’t have been such a see-sawing of the economy between government intervention and free markets (with lack of regulation). Both Keynes and Hayek were consultants to government – and the widely divergent views of the two helped shape the economic pendulum of today.

Wapshott said things are likely to come to a head during the 2012 Presidential election. President Barack Obama, with his stimulus spending and government intervention, is no doubt a Keynesian disciple. The Republicans, with their mantra about less government, could be considered Hayekians in their beliefs. “This election will actually be Keynes versus Hayek,” Wapshott said. “This time, the public gets a chance to decide.”