Thursday, April 09, 2009

Freidman vs Keynes

Milton Friedman, notes that, "There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income."

A certain Keynes may argue that the government is “.. Of the people, By the people and For the people”, spending people’s money or at least is supposed to be under a democratic system. Perhaps, it was this belief that led him to propose government intervention to prop up the economy.

So whether you believe in the ‘invisible hand’ of the market as proposed by Classicists or chose to follow the Keynesians, could ultimately depend on your view of the government’s sincerity

My 2 cents

  1. Both the World Views (Weltanschauung) are flawed. They are joined at the hip by economics, which is based on the assumption of rational behavior of humans
  2. I for one don’t want to take it too seriously for the following reasons
  • I am not sure if humans are capable of being always rational
  • Even if they are, how do you define rationality (Economics only measures rationality on one dimension aka money. Humans can be rational on many dimensions while appearing completely irrational on money)

While, both approaches can work wonderfully at various times (as seen in the past), the tremendous belief in their own worth (hubris) is their tragic flaw (hamartia) and ultimately causes reversal of fortunes (peripetia)

Perhaps, a mix of both approaches such as seen in India. Free (relatively) markets tempered with government oversight and occasional intervention may be the way forward

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