Richard Fast, ORCID: https://orcid.org/0000-0002-9779-1659
M.A. Economics 2022, Troy University, USA
This paper explores the differences between the mainstream economic interventionist view associated with John Maynard Keynes and the heterodox, non-interventionist Austrian School perspective associated with Friedrich Hayek on the Great Recession of 2007-2009. The literature review compares and contrasts articles explaining each view as they attempt to solve the problem of ending the recession. The heterodox Austrian School/Hayekian view is that central banks should take a hands-off approach to recessions, whereas the mainstream neo-Keynesian view is that central banks should take a more active role through monetary easing in an attempt to end the Great Recession. These two approaches are at odds with each other, but through this thorough and robust analysis, we will understand the similarities (if any) as well as substantial differences and what they can tell us for the next recession. Also included is a section on Methodology to highlight the differences in how economists of both camps conduct their research and present their findings to argue their case. The paper uses an analytical framework to show how the Austrian/Hayekian and Keynesian approaches differ both in content and methodology. The Keynesian perspective makes use of graphs and empirical data in the primary sources referenced to prove that the federal government and the Federal Reserve should have acted more quickly to implement an interventionist economic recovery. On the other hand, the Hayekian/Austrian approach makes use of methodological individualism and praxeology as the lens with which to examine the Great Recession and to show that such economic interventionism had the opposite of the intended effect; intervention, according to the Austrians, made the crisis worse. Not only are their conclusions different, but the means by which they examine the crisis are different as well. Finally, the paper examines some areas for future research on both sides to make each case stronger. Special emphasis is placed on how to develop the arguments of these two views further with regard to future recessions, particularly of the magnitude of the 2007-8 financial crisis.
Keywords: Great Recession, Keynes, Hayek, central banks, Austrian Business Cycle Theory, monetary policy.
JEL Classification: B5, B4, E14, O4.
Cite as: Fast, R. (2021). Handling the Crisis: A Keynesian vs. Austrian Analysis of the “Great Recession”. SocioEconomic Challenges, 5(3), 43-50. https://doi.org/10.21272/sec.5(3).43-50.2021
This work is licensed under a Creative Commons Attribution 4.0 International License
- Rognlie, M., Shleifer, A., and Simsek, A. (2018). Investment Hangover and the Great Recession. American Economic Journal: Macroeconomics10 (2): 113–153. [CrossRef].
- Munoz, G.G., & Ortiz, R.B. (2016). Las Politicas Monetarias Heterodoxas En El Contexto de La Gran Recesion. Un Comparativo Entre El Sistema de La Reserva Federal y El Banco Central Europeo. (Heterodox Monetary Policies in the Context of the Great Recession: A Comparison between the System of the Federal Reserve and the European Central Bank. With English Summary). Analisis Economico, 31(77), 177–204. EBSCOhost. Available at: [Link].
- Horwitz, S. (2011). Theory, History, and the Great Recession. Review of Austrian Economics, 24(2), 171–184. EBSCOhost. Available at: [Link].
- Cochran, J.P. (2010). Capital in Disequilibrium: Understanding the ‘Great Recession’ and the Potential for Recovery. Quarterly Journal of Austrian Economics, 13( 3), 42–63. EBSCOhost. Available at: [Link].
- Murphy, R.H. (2015). The Plucking Model, the Great Recession, and Austrian Business Cycle Theory. Quarterly Journal of Austrian Economics, 18(1), 40–44. EBSCOhost. Available at: [Link].
- Young, A.T. (2012). The Time Structure of Production in the US, 2002-2009. Review of Austrian Economics, 25(2), 77–92. EBSCOhost. Available at: [Link].
- Snowden, N. (2015). What Really Caused the Great Recession? Rhyme and Repetition in a Theme from the 1930s. Cambridge Journal of Economics, 39(5), 1245–1262. EBSCOhost. Available at: [Link].
- Congdon, T. (2015). Did Increased Inequality Cause the Great Recession?” World Economics, 16(3), 101–125. EBSCOhost. Available at: [Link].
- Koppl, R., & William, J.L. (2012). Hayek, Keynes, and Modern Macroeconomics. Review of Austrian Economics, 25(3), 223–241. EBSCOhost. Available at: [Link].
- Bean, C. (2018). Central Banking after the Great Recession. Economic Affairs (Institute of Economic Affairs), 38(1), 2–15. EBSCOhost. Available at: [Link].
- Hasan, M.M.R., Kahn, T.R., Choudhury, T.T., Adnan, T.M., and Islam, M.D. (2015). The Austrian and Keynesian Business Cycle Theory and Its Effectiveness to Combat Recession – A Case Study in the Construction Industry in the United Kingdom. Journal of Economics and Sustainable Development, 6(12), 124-130. Available at: [Link].
- Hammond, J.R. (2012). Ron Paul vs. Paul Krugman: Austrian vs. Keynesian Economics in the Financial Crisis. CreateSpace Independent Publishing Platform. Available at: [Link].
- Fillieule, R. (2016). The U.S. Monetary Policies against the Great Recession of 2008: A Critique from the Deflationist Viewpoint of the Austrian School. Journal Des Economistes et Des Etudes Humaines, 22(1), 99–111. [CrossRef].
- Kates, S. ed. (2010). Macroeconomic Theory and Its Failings: Alternative Perspectives on the Global Financial Crisis. Cheltenham, U.K. and Northampton, Mass.: Accessed September 3, 2021. Available at: [Link].
- Bragues, G. (2016). The Political Regime Factor in Austrian Business Cycle Theory: Historically Accounting for the US and Canadian Experiences of the 2007-2009 Financial Crisis. In S. Horwitz (Ed.), Studies in Austrian Macroeconomics (pp. 137–161). Advances in Austrian Economics, vol. 20. Bingley, UK: Emerald. Available at: [Link].
- Machovec, F. M. (2014). Our Classical Macro Heritage. Quarterly Journal of Austrian Economics, 17(3), 273–312. Available at: [Link].
- Wayne, J. J. (2015). Predicting Major Economic Events with Accuracy: A New Framework for Scientific Macroeconomic Models. American Journal of Economics and Sociology, 74(2), 419–456. [CrossRef].
- Whalen, C. J. (2010). Full Employment with Liberty: John R. Commons’ Perspective and Its Continuing Relevance.” Journal of Economic Issues, 44(2), 559–567. [CrossRef].
- Usenmez, O., & Duman, L. (2016). Revisiting Free Market Utopia: A Hayek-Polanyi Reminder. Journal of Economic and Social Thought, 3(1), 101–112. Available at: [Link].
- Troncoso, J. N. (2019). Time Traders: Derivatives, Minsky and a Reinterpretation of the Causes of the 2008 Global Financial Crisis. Journal of Post Keynesian Economics, 42(3), 469–486. Available at: [Link].