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.
In recent years, this long-running debate has become increasingly contentious – and the costs of stalemate are mounting. In order to restore growth in developed economies, while sustaining strong GDP growth and reducing poverty in the developing world, a more unified approach to economic policymaking that draws from both traditions is needed.