Friedrich Hayek was an Austrian economist who later moved to the UK and was considered as the main opponent of John Maynard Keynes, perhaps the most famous British economist and philosopher. However, both these famous economists had many famous theories and ideas that could significantly help the current economic crisis we are in. This lecture provided an insight into the thinking of Hayek and what he would do to fix the economic mess the world is in, according to the theories and ideas he collated in his works.
Firstly, Hayek is most known for his contribution in the boom and bust cycles or better known as the Business Cycle. Hayek claimed the problem was the boom and not the recession that follows, according to his theories the recession that is followed by a period of economic prosperity, lasts for as long as the period of economic prosperity was for. Dr. Eamonn Butler used an excellent analogy to describe the peculiar relationship between the boom and the bust and that was the recession was like a hangover after a party which is the period of economic prosperity or boom. Therefore, Hayek warned that whenever there are years of economic boom, economists should be fearful that a recession is going to hit soon, as it is inevitable according to the business cycle. It is apparent that prior to the Great Recession of 2008, economists were unprepared for the total economic disaster that was about to ensue.
Furthermore, Hayek believed that markets should be free and not constrained by government limitation such as in the form of ‘red tape’ which is legislation that limits the flexibility of the market. He also stated that the labour market should be free which means the National Minimum Wage (NMW) should be scrapped, which would cause some outrage amongst people. However, the explanation behind these controversial decisions was extraordinary. In the case of the labour market, it was claimed that the reason why high unemployment exists is due to the NMW and if it were scrapped more people would become employed as currently some people cannot be hired as the NMW is too high for some firms to advocate to. In addition, the normal market should be free so the correct ‘price signals’ are given out. This means that consumers and firms see the correct price of a good or service in the market system, as currently taxation and ‘red tape’ can act as ‘fog’ in Dr. Eamonn Butler’s words.
Moreover according to Dr. Butler, Hayek would have believed that the ability given to the Monetary Policy Committee (MPC) of the Bank of England (BoE) to set interest rates is wrong and should be stopped, as false information is then given out to consumers and firms that they should start to spend more money, whereas they should do the opposite. Similar to the freedom that should be granted to labour markets and the markets for goods and services, should also be granted to the interest rates. This would lead to correct information reaching firms and consumers and they would know the current economic position of the UK, rather than that knowledge only being shared with the central bank, the BoE.
To conclude, Dr. Eamonn Butler offered the most likely opinion Hayek would have offered had he still been alive today. It seems as if that this could perhaps be the solution to exiting the current economic disaster we are in and that is to refer to the theories and teaching of past economists.
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