The Austrian Model Of Economics Is Better Than The Keynesian Model

In this debate, I will be arguing that the Austrian School's model is not better than that of the Keynesian School. Therefore, if one reaches the conclusion, based on the evidence provided in this debate, that (1) the Keynesian model is better or (2) that both models are equally good, then the opponent has failed to defend the resolution. Furthermore, based on the nature of the matter being debated, the burden of proof in this debate will be shared (and if my opponent wishes to contest this, he can bring it up in the comments section.)In 1929, the American public witnessed the beginning of what would be a difficult, decade-long economic struggle: the Great Depression. In the United States, unemployment soared to 25% and public expenditure dropped drastically. [1] The reason for this lack of expenditure, as Keynes argued, is that investors were less willing to place money into industry [2]; businesses seek to invest in order to receive a return, and when consumption is very low (as it was during the Great Depression), no business would be willing to invest in increased production in the future. For this reason, government intervention is necessary to recover in economy in big bust situation. By expanding government-run investment (while lowering prices), more money is poured into the market, and this capital would increase general consumption and, in turn, stimulate a desire to invest in future production. Much of FDR's New Deal policy was largely grounded in Keynesian theory, and through government investment and the stimulation of public expenditure, the nation recovered from the Great Depression; in fact, as economist Paul Krugman has argued, the New Deal policy was less effective when it was first enacted because there was not enough government spending [3]. There is little reason to believe that the devastating effects of the Great Depression could be easily reversed without the government intervention that took place--or if all government institutions were removed from the market, as many Austrians would assume. Indeed, unlike many of the Austrian School's theories, the Keynesian Model has been tested and proven effective through historical and empirical evidence. Surely, some forest fires (representing busts, in my opponent's analogy) go away naturally, but some destroy entire habitats and walks of life; major busts must be "extinguished" by government investment and stimulation of consumption, because a big bust is a self-perpetuating path toward economic instability that cannot reverse itself. The Austrian School proposes that, during a state of recession, we avoid intervention and we let the banking system collapse, let businesses resist investment, and let the unemployment rate soar. There is no empirical evidence that such a system would work, and Austrian economists have a track record of making predictions that never come true because of their irrational fear of any government intervention in the monetary market. This may be why a number of very influential libertarian thinkers, including economist Milton Friedman, renounced the "natural" business-cycle theory of the Austrians. Austrian models are grounded in theoretical propositions (such as full employment) that simply cannot be used to provide reasonable evaluations of economic reality. --- [1] http://www.econlib.org...[2] http://books.google.com...[3] http://www.nytimes.com...