a rap video on one of the most important current debates taking place in economic theory. Both positions, summarized very much, say
a) Keynes: When an economy goes into recession, the State must supplement the lack of private demand by public demand through spending. Thus, consumption is encouraged, resulting in the activity and avoid a drop in unemployment. To make matters worse, the government must be very hard on savers, saving as consumption slows this, hurting economic activity. It is a question of money flooding the economy through fiscal and monetary policy loose.
b) Hayek: Like all economists of the Austrian School of Economics, says that the blame for the economic cycles are due to previous credit expansions, causing an unrealistic assessment of the risks involved when investing. The economy has so much money floating around to come a point, all future investment projects appear profitable. After a time, eventually overheated economy, where price increases resulting in a dangerous inflation, leading central banks to cut their losses the flood of easy money. It is at that moment, when the lack of liquidity starts to take its toll on projects previously appeared profitable but which now are not. Excessive indebtedness of the economy begins to lead to increased savings, to pay debts, causing a decline in consumption, productivity and therefore higher unemployment.
For Hayek, the Keynesian solutions based on increased government spending, are such as giving more alcohol to a drunk with a hangover, that is, solve the headache in the short term, but do not eradicate the real problem is the addition to cheap money . In addition, states tend to spend in times of economic weakness over its revenue collection capabilities, resulting in government debt caused by the fiscal deficit. Further aggravating the situation. Why?
Because this debt must be paid some day, because we must remember that the state is not productive, but that is financed through taxes. If we have an expansive fiscal policy and public spending increases without tax increases, will end up with no money and in debt.
That is the English problem. The government of Mr. Zapatero joined the populist promises of 400 € and check the baby (at the time criticized for having a very high cost), a dramatic increase in public expenditure for social policies of all kinds. After two years of recession, with a significant drop in tax collection and uncontrolled spending, the deficit began make an appearance. And the deficit had to be financed, the refusal to raise taxes, via emsión debt. Debt
buying international funds to which both are accused of speculators, but at the end of the day are those who continue to spend blithely allowed this government in their actions as reckless. Now, the same funds see that our government is doing nothing to prevent continued to spend, and are afraid you do not end up paying what they owe, so do not want to know about our economy. Require higher rates of return to be with our bond debt, ran away from our businesses and investment away. The problem is such that even the Euro, the which is part of Spain, begins to look like a currency that loses value, causing the holders of euros to undo their positions and prefer to be with a currency more valuable.
Once again, Keynes seemed to be our savior of the disaster and in the 30's, however, as then, the implementation of its action leads to a state debt crisis, unemployment and economic stagnation as occurred in 70's. Now, who saves us from him?
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