Keynesian Economics vs. The Austrian School of Economics, An Analogy

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The Keynesian Home-owner vs the Austrian School Home-owner

The Austrian School of economics would have us leave our hands off the economy. Get govt out of the picture, they say, and everything will tend to itself better. Let’s explore what that would mean from the perspective of a home-owner’s lawn.

Under laissez-fair lawn care, no amendments could be applied to the lawn, no fertilizer and not even water. Should there be a drought, the grass will be left to brown. There would certainly be some benefit to this in areas with a water supply shortage, but it could lead to soil erosion if the grass is not replaced quickly enough. If the Austrian School home-owner had pets that left “presents” on the lawn, that raw manure would be left to sit and create patches of dead grass. Through natural secondary succession, soon most of the grass will be replaced by shrubs and trees. Eventually it will become a forest instead of a lawn. While that’s great for harvesting timber and for woodland habitat, it’s not much good for having space for kids to play in the grass, for a place to set up your grill for the 4th of July (as overhanging trees would be dangerous), or for much else of what most of us want to have and do right outside our houses.

The Keynesian neighbor, on the other hand, does not share the Austrian’s faith that a hands off approach is always best no matter what’s going on with the lawn. Instead, the Keynesian will consider whether there’s some way to help the lawn stay a nice, green area in which to grill, read, work, or play. Depending on his experience — or means — the Keynesian will start with some test to determine the health of the lawn. It might be just looking at whether the grass is green and the soil is dark. Or it might involve testing pH and nitrogen levels. When the soil lacks nutrients, opinions will vary among such home-owners whether it is best to use organic fertilizer or manufactured amendments. But most will have studied the options at least enough to know to avoid raw manure, as that will tend to burn the grass. Some will find that all they need to do is spread some extra seed — perhaps drought resistant varieties — where the grass is looking a little thin. Some will worry about every little weed, while others will be content to enjoy the dandelion blooms as long as the lawn is more grass than weed. While the occasional such home-owner will experience setbacks, extremely few end up doing their lawn more harm than good. Most will end up with a lush, enjoyable, robust lawn on which their kids may play and they may eat their hot-dogs and hamburgers in satisfaction. Some will even improve their landscape enough to raise the market value of their house.

“But wait,”, you might say, “what’s this have to do with economics? After all the economy isn’t just a lawn.” Yes, and there have been metaphors that shot and missed at capturing economic truth. But consider: life lacks perfection. If the base, natural state of humanity were a perfectly functioning economy without government, governments would never have been able to compete with the raw anarchy before that first tiny government. That first bumbling govt meant the group that formed it obviously out-competed neighboring anarchism. Govt is our means to seek the greener economy in which we wish to see our children play. We develop rules that help us succeed.

Beyond that, aside from its competitive ability, govt is our means to push our economy to look the way we want. Without govt, what happens? Some industries left on their own will do the right thing because they’re run by someone with a sound moral compass. Others are run by those who care only about wealth. And these — absent govt — will do things like Sinclair described in The Jungle and others have recorded elsewhere of the dark days of unfettered industry. Absent child-labor laws, there would again be five year old girls working 12+ hour days in sweat shops. Absent work-safety laws, those same kids would once again very rarely make it to adulthood without being mangled in a workplace accident. Absent food and drug regulation, we would once again have reason to expect not just the occasional problem but rather frequent death and debilitation from our food and the snake-oil that would pass for medicine. These are the dark and dangerous plants that would invade our lawn if it were not for govt regulation and oversight. Were the Austrian School to fully succeed in their nightmarish dream of entirely unfettered markets, we would likely soon see our economic lawn overwhelmed by poison ivy and thorny trees. If we’re to have a place to grill safely and for our children to play on fields of grass, we need to tend our lawns.

And as a bonus, it may well increase our property value.