Have you ever listened to politicians and wondered what kind of economic textbook they read? Or wondered how some politicians can espouse “pull yourself up by your own bootstraps” mentality as they legislate billions in bailout funds? Or how they can argue for massive spending bills to stimulate the economy as they also decry the gigantic budget deficit?

Naturally a lot of this is just political posturing. Perhaps most of it, actually. But it all stems from two competing economic theories that were first voiced about 80-years ago. Keynesian economics, named after John Maynard Keynes, is widely known for deficit spending and massive tax cuts. Keynes contemporary nemesis was Freidrich Hayek, who said that government manipulation of the free market was a very very bad idea. He called for more of a hands-off approach.

Most economic theories since the 1930’s have been built around the thinking of these two men. Sometimes the theories, which are more or less counter to each other, have been blended and wildly misunderstood. An example would be that it is actually Keynesian for Republicans to call for tax cuts as a way to stimulate the economy (though the vast majority would be outraged if you called them Keynesian practitioners). Plus Hayek himself would be amused if you tried to call him a “conservative”. He felt that the ultimate conservative was one who didn’t want anything to change, and saw himself as a true liberal in the best sense.

These insights come from the book Keynes Hayek: The Clash that Defined Modern Economics, by Nicholas Wapshott. This is a timely book and one that every informed voter should read. Our economy needs wise guidance, and it’s important that a lot of the political rhetoric be swept out so we can have real conversations about the state of our nation. There are elements of the book that are dry and, dare I say it, a bit boring. But for an economics book, it’s really engaging. It helps that the two people being featured are fascination themselves.

After reading this book, I formed my own opinions about the two competing economic theories. For instance, Keynesian economics actually does seem to work. The economy is responsive to government spending, tax adjustments, and interest rate manipulation. Perhaps not as responsive as some would want you to believe, but still responsive.

But Keynesian economics also feeds a raging beast that is dangerous. That raging beast is highly centralized control in the hands of politicians and people who work for the Federal Government (I’m looking at you, Bernanke). To a pure libertarian, Keynesian economic practices are frightening. Thus the Tea Party reaction (some might say overreaction).

Perhaps this is why the clash between the two principles continues. Keynesian systems seem to work but create threatening systems of control that run against the American psyche. Government gets big and suddenly we are all fans of Hayek. On the other hand, Hayek created ideas that are highly appealing to our sense of self-determination, but they are not very comforting when factories are shuttered, people are unemployed, and banks are failing. When that happens, as economist Robert Lucas famously said, we are all Keynesians in a fox hole.

A thought provoking and intelligent book. If you want to be an informed voter, or just understand economic theory a bit better, I recommend it.