Essential Hayek: Economic Booms and Busts

This is part of a Fraser Institute project to present the ideas of F.A. Hayek. In this video, we explore Hayek's work on economic booms and busts, for which he was awarded a Nobel Prize in Economics in 1974.

[chipchip]

Interesting example of government stimulating demand and manipulating supply. As Adam Smith noted, those who derive profit have 2 objectives: expand the market and destroy competition. To the second, government is introduced by established entities to restrict competition including barriers of entry through excessive regulations. A free market economy without competition functions as well as a hot-air ballon without the hot air

[WPBruce]

Good work!!  These videos are excellent and a very good way to introduce the ideas of Hayek to the general public.  I am sending links to friends!

[Fromard]

1:06 I really like the "chocolate covered pickle". My wife does not.

[josephorlando]

That right there best describes what happen in 2007

[AhmadAhmad-qxfp]

The proliferation of political motives into economics, which consequently made business begins to invest into politics and hires massive lobbyists to secure its interests are also responsible to the detrimental of economy.

Combine that with oligarchs, then you'd have potent recipe for perpetual disaster

[fredneecher]

Believe it or not, "what consumers want" is a very malleable entity. You might as well argue that advertising "distorts demand".

[s]

This example does well at explaining what would happen if the government intervened to provide targeted investment to firms, but what about stimulus directed to the consumer?

[dr.floydmillen]

Hayek's influence on Margaret Thatcher was phenomenal. My book "Thatcherism Hayek & the Political Economics of the Conservative Party" looks at this

[karstenfliegt]

what the video does not say(and please tell me, if i am wrong):

there are subsidies wich are very important, like enviroment subsidies (like solarplants or windwheel or whatever); oil and gas is still cheaper, but the enviroment is getting destroyed - and we only have this planet wich means it is priceless... i know it is a bit polemic, but i think you get the point, right?

[Calisthenics-boy]

This happens with or without government intervention

if there is more demand for a particular product but not enough supply prices rise and this means greater potential profit so lots of money flows into mass production of the product and jobs are created and a boom happens and the more you produce the more profits in theory buy the demand isn’t high enough for this explosion in supply so prices fall to unprofitable levels then bust people are laid off and the economy isn’t doing so well but now prices go up again because supply is once again below demand so people get back into work and a boom and then bust and the cycle continues

[srta.carlota]

(im a newbie at economics but..)
Japan's did this, the goverment intervened and favored national companies over foreign ones.. and their economy grew like crazy!
(yes, they also implemented some great liberal measures)
Why did Japan's intervention worked? If Japan didn't intervene, maybe the country could've grew faster and wider?

[giatonpeonta]

can you make the same video, but with transistors instead of chocolate covered pickles?

[abcrane]

Perhaps the greatest absurdity in economic ideology and behavior is the “social fact” that a shortage of demand poses a great threat in the outcome of recession and depression. That, indeed!, the lack of want—the currently satiated desires for needs and wants—leads to the very situation of the lack of supply of those undesired product offerings. Not the lack of sustenance, which means a state of literal poverty—but the lack of want for that sustenance—a state of fulfilled needs—characterizes the “state of poverty.” A mass who buys into this “conventionally wise” doublespeak has been sold hook, line, and sinker and down the river that obscures in its ebbs and flows the other “social fact” that a lack of demand is not the poverty of the common fishermen but that of the sole proprietor of the bait and tackle shop. What lies at the roots of literal poverty, then, is the separation of the lone fisherman from the means of their own production. Each according to their own supply, each according to their own demand. Keep the interventionist officials and the seductive advertisers-alike!-out of this equation for self reliance! Perfect competition can only be accomplished when each learns to bait their own hook.

[Lnx]

Even in 2022 People still ignore these basic rules of cycles.

[taylorsessions]

Gasp, you mean stimulus checks are a bad thing?

The future is grim.

[logicking]

So why can’t the government understand the market first and then create job opportunities where demand is in correspondence with what the market wants?

[nthperson]

An important question is why our society continues to experience cycles of boom and bust. There is sound historical research on this issue that is ignored because the findings are too politically volatile. Our systems of law and taxation have evolved NOT to stimulate a non-inflationary full employment outcome but to secure and protect what in economics is referred to as rent-seeking privilege. The outcome of laws that favor rent-seeking result in the redistribution of income and wealth from producers to non-producers, or free riders. The way government at all levels raises revenue to pay for public goods and services has many of these elements. We tax income earned producing goods and providing services. We tax the tangible goods we produce. And, we tax the exchanges of these goods and services. Such taxes impose high consequences on economic output, referred to in economics as "dead weight losses."

And, then, there is nature. The cost of production of nature is zero. No human labor is required. No capital goods are required. From a moral perspective, the earth is the birthright of all persons equally. What the individual needs to apply labor and capital goods to nature is secure possession. In return for secure possession, the individual who controls nature (which, in most cases is a parcel or tract of land, whether in a town or city or in a rural region suited for agriculture or mineral extraction) OWES to the community a payment for this protection, for the privilege of being permitted to control some portion of the planet.

What, then, ought to be this charge? We can look to the 18th century political economist Adam Smith for the answer. Every parcel or tract of land has some potential rental value, what people engaged in competitive bidding would pay to gain control of that part of nature. Political economists referred to this charge as "rent." What individuals would bid is based on the advantages attached to the land involved over other locations. The English political economist David Ricardo applied scientific analysis to determine how the rental value of locations would change over time, as population increased and the opportunity disappeared for people to move to and produce on land not then occupied or claimed.

Late in the 19th century, the American political economist Henry George concluded that the primary reason why societies experienced these cycles of boom and bust, the primary reason that income and wealth was becoming increasingly concentrated, was because rent was left in private hands and government taxed what really belonged to people, earned from working, from producing goods and providing services. Henry George's lesson to us remains to be put into practice. Otherwise, we will continue to suffer by our own hands.

Edward J. Dodson, Director
School of Cooperative Individualism

[TheRoamingWatcher]

the bust in reality was caused by companys building to fast because the demand was so great but eventually it ran out of steam and the people bought the one they wanted consistently and given that Gov is the issuer of currency and banks loan out the currency at its roots all currency is created by Gov.banks are for profit the Gov isn't

[jamisonmaguire]

"There is no difference between communism and socialism, except in the means of achieving the same ultimate end: communism proposes to enslave men by force, socialism - by vote. It is merely the difference between murder and suicide." the Ayn Rand Lexicon

[SuperEbbandflow]

Really could use one of them chocolate covered pickles right about now