A Grand Unified Economic Theory?

In recent years, the long-running debate between Keynesian and Austrian economic thought has become increasingly contentious – and, as the US government shutdown demonstrates, the costs of stalemate are mounting. A more unified approach to economic policymaking that draws from both traditions is needed.

NEW YORK – Last month’s US government shutdown – the result of a partisan standoff in congressional budget negotiations – epitomizes the polarization that prevails in modern economic-policy debates.

On one side, John Maynard Keynes’s cohort argues that government intervention can help any economy grow its way out of crisis by spurring aggregate demand and, in turn, raising the employment rate. A country’s government, Keynesians contend, has the capacity – and responsibility – to solve many, if not all, of its economic problems.

On the opposite side, followers of the Austrian School of economic thought, especially the ideas of Friedrich Hayek, assert that limited government and free enterprise form the only viable path to liberty and prosperity. The market is the best arbiter of how to allocate scarce resources, and thus should serve as an economy’s main driver.