Reconciling Hayek's and Keynes' views of recessions
Paul Beaudry, Dana Galizia, Franck Portier 01 June 2014
Hayek viewed recessions as working out excessive investments; Keynes viewed them as demand shortages. This column argues that they may not be as mutually exclusive as many think. Recessions may reflect periods of liquidation but this may be associated with inefficient adjustment involving unemployment and precautionary savings. Stimulative policy may be desirable even if it delays the full recovery.
There remains considerable debate regarding the causes and consequences of recessions. Two views that are often presented as opposing, and which created controversy in the recent recession and its aftermath, are:
recession, Keynesianism, Hayekian recession