How Did Hayek Affect The Economy
John Maynard Keynes was an English economist who felt planning wartime economies would help governments defend freedom. Friedrich von Hayek on the other hand, was an Austrian economist who thought freedom would be threatened if there were government intervention in the economy. Keynes felt that with no government intervention, the market economy would overload, and when problems occurred, the market would not work. Hayek disagreed, and felt that with no government intervention, the market would eventually take care of itself. Hayek did not favor inflation, and felt it was an evil that ruined society and damaged democracy. Although Hayek opposed inflation, Keynes felt that some inflation could help the economy as a whole. Keynes did not fight significant inequalities in income and wealth, and thus did not favor a society in which incomes and wealth were equally distributed among all members of society. He thought of two reasons for inequality, the first reason is that it is an incentive for productive activity and is a network for competitive motivation. However, he felt that existing inequalities were tremendous, and they should be reduced as soon as possible. Although Keynes felt that inequalities in income and wealth were a problem, Hayek did not see a problem with inequality and how it might limit our freedom, but instead argued that the
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heavy hand of the state was the only thing that people should be afraid of. Hayek hardly saw economic inequality as a problem, while other economists felt that it is a giant threat to society. He was in favor of the extension of free markets, which would then lead to income inequality. Furthermore, Keynes saw excessive inequality as a threat to society, and his motive was to eliminate it entirely.
Keynes noted how higher taxation of larger incomes and inheritances could be a possibility of generating tax revenue; however, he did not support this idea. He supported the idea of leaving most of the economy in the hands of private actors, and could potentially be accomplished by controlling taxes and interest rates. Keynes did not oppose private property, wage labor, or market exchange. He agreed that a high amount of progressive taxation would be a logically approach to fixing dangerous income
gaps.
Consequently, Keynes developed a stabilization policy, which would smooth out the fluctuations in the economy. In order to stabilize the economy, interest rates would rise to slow things down when the economy is doing well, and interest rates would lower when the economy is doing poorly. With the stabilization policy, there is no wealth redistribution, no regulation, and no command economy. Stabilization policies do involve some redistribution. Such policies help fight recessions by boosting inflation, which in turn would benefit those who are in debt and hurt people living on a fixed income.
On the other hand, Hayek’s views on progressive taxation is that the only valid response to having one individual kind of tax to be progressive is that it may counterweigh for the indirect taxes which excessively affect the poor more than the rich. In order for a tax to be redistributive, its revenue must be used to provide a service for a certain economic class. Nevertheless, Hayek pointed out that lower classes would be giving up portions of their available income in return for more “free” services.
Furthermore, Hayek wrote that discrimination against the wealthy has been initiated by the rejection of equal taxes. He felt that in no way should a tax that charges a certain percent to one’s income and a different percent to another’s income be considered equal distribution. Hayek thought that limiting the rate of direct taxation to total burden of taxation would be a better solution to the progression of taxes. Hayek noted, “The most practical solution is to link the percentage of national income that the government intends to collect as taxes and declare that same percentage the maximum marginal rate of direct taxation.” Additionally, the article by John Cassidy, “Piketty’s Inequality Story in Six Charts,” discusses charts that Piketty and his colleagues used to reshape the entire inequality debate. According to the article “The President of Inequality” featured in The Wall Street Journal, Barack Obama’s Presidency has lead to more inequality in the United States than past presidents. Economic surveys have shown that the policies he has ratified make him the best President for slow growth and inequality in modern history. The slow uneven growth of income has led to an increase in inequality, which in 2013, rose from .476 to .481. President Obama’s policies aim to provide transfer payments like Medicaid, jobless benefits, and increase the number of Americans on food stamps and disability payments. ObamaCare is known for providing “free” healthcare to millions of Americans by taxing the wealthy and those who already have health insurance. It is important for America to have policies that put growth as the country’s highest economic priority, and as a result create more equality. Another article featured in The Wall Street Journal, “Election Pay Day: Five States Vote to Raise Minimum Wage,” discusses the five states who favor higher minimum wages. Support for raising minimum wages has grown in recent years, and efforts have been made by President Obama to raise the federal minimum wage. For example, voters in San Francisco support the idea to raise the minimum wage to $15 by 2018, from $10.74, which would match Seattle being the highest in the nation. Business owners feel that when any expense goes up, it impacts their business. The National Federation of Independent Business does not support the idea of raising minimum wages, saying that employers will not be able to absorb a sharp increase in labor costs. Furthermore, increasing the minimum wage would reduce employment by 500,000 jobs, or 0.3%, as employers seek to trim labor costs. Arguments have been made both pro and con regarding income redistribution. A positive aspect of the redistribution of wealth is that it creates a human sense of equality. In the United States, equality within the world of wealth does not always exist, but with redistribution of wealth, it allows citizens to feel a sense of fairness. Also, redistribution of wealth can help provide peace and stability in the United States. Overall, the redistribution of wealth can help our society as a whole. It can help reduce poverty and starvation if the money is carefully examined and well spent. Moreover, there are arguments against the redistribution of wealth. The first argument is that it goes against the nation’s economic system of free capitalism. Redistribution of wealth involves government interference, which opposes the values of true capitalism. Redistribution can also negatively affect society’s growth opportunities. Lastly, redistribution of wealth can make people lazy because they would no longer have to work in order to live. It is also considered bad because it is a form of forced charity, meaning, the rich might have to sacrifice their own money for the poor.
heavy hand of the state was the only thing that people should be afraid of. Hayek hardly saw economic inequality as a problem, while other economists felt that it is a giant threat to society. He was in favor of the extension of free markets, which would then lead to income inequality. Furthermore, Keynes saw excessive inequality as a threat to society, and his motive was to eliminate it entirely.
Keynes noted how higher taxation of larger incomes and inheritances could be a possibility of generating tax revenue; however, he did not support this idea. He supported the idea of leaving most of the economy in the hands of private actors, and could potentially be accomplished by controlling taxes and interest rates. Keynes did not oppose private property, wage labor, or market exchange. He agreed that a high amount of progressive taxation would be a logically approach to fixing dangerous income
gaps.
Consequently, Keynes developed a stabilization policy, which would smooth out the fluctuations in the economy. In order to stabilize the economy, interest rates would rise to slow things down when the economy is doing well, and interest rates would lower when the economy is doing poorly. With the stabilization policy, there is no wealth redistribution, no regulation, and no command economy. Stabilization policies do involve some redistribution. Such policies help fight recessions by boosting inflation, which in turn would benefit those who are in debt and hurt people living on a fixed income.
On the other hand, Hayek’s views on progressive taxation is that the only valid response to having one individual kind of tax to be progressive is that it may counterweigh for the indirect taxes which excessively affect the poor more than the rich. In order for a tax to be redistributive, its revenue must be used to provide a service for a certain economic class. Nevertheless, Hayek pointed out that lower classes would be giving up portions of their available income in return for more “free” services.
Furthermore, Hayek wrote that discrimination against the wealthy has been initiated by the rejection of equal taxes. He felt that in no way should a tax that charges a certain percent to one’s income and a different percent to another’s income be considered equal distribution. Hayek thought that limiting the rate of direct taxation to total burden of taxation would be a better solution to the progression of taxes. Hayek noted, “The most practical solution is to link the percentage of national income that the government intends to collect as taxes and declare that same percentage the maximum marginal rate of direct taxation.” Additionally, the article by John Cassidy, “Piketty’s Inequality Story in Six Charts,” discusses charts that Piketty and his colleagues used to reshape the entire inequality debate. According to the article “The President of Inequality” featured in The Wall Street Journal, Barack Obama’s Presidency has lead to more inequality in the United States than past presidents. Economic surveys have shown that the policies he has ratified make him the best President for slow growth and inequality in modern history. The slow uneven growth of income has led to an increase in inequality, which in 2013, rose from .476 to .481. President Obama’s policies aim to provide transfer payments like Medicaid, jobless benefits, and increase the number of Americans on food stamps and disability payments. ObamaCare is known for providing “free” healthcare to millions of Americans by taxing the wealthy and those who already have health insurance. It is important for America to have policies that put growth as the country’s highest economic priority, and as a result create more equality. Another article featured in The Wall Street Journal, “Election Pay Day: Five States Vote to Raise Minimum Wage,” discusses the five states who favor higher minimum wages. Support for raising minimum wages has grown in recent years, and efforts have been made by President Obama to raise the federal minimum wage. For example, voters in San Francisco support the idea to raise the minimum wage to $15 by 2018, from $10.74, which would match Seattle being the highest in the nation. Business owners feel that when any expense goes up, it impacts their business. The National Federation of Independent Business does not support the idea of raising minimum wages, saying that employers will not be able to absorb a sharp increase in labor costs. Furthermore, increasing the minimum wage would reduce employment by 500,000 jobs, or 0.3%, as employers seek to trim labor costs. Arguments have been made both pro and con regarding income redistribution. A positive aspect of the redistribution of wealth is that it creates a human sense of equality. In the United States, equality within the world of wealth does not always exist, but with redistribution of wealth, it allows citizens to feel a sense of fairness. Also, redistribution of wealth can help provide peace and stability in the United States. Overall, the redistribution of wealth can help our society as a whole. It can help reduce poverty and starvation if the money is carefully examined and well spent. Moreover, there are arguments against the redistribution of wealth. The first argument is that it goes against the nation’s economic system of free capitalism. Redistribution of wealth involves government interference, which opposes the values of true capitalism. Redistribution can also negatively affect society’s growth opportunities. Lastly, redistribution of wealth can make people lazy because they would no longer have to work in order to live. It is also considered bad because it is a form of forced charity, meaning, the rich might have to sacrifice their own money for the poor.