What is Keynesian Economics?
Keynesian economics is an economic theory named after John Maynard Keynes, a British economist who lived from 1883 to 1946. He is most well-known for his simple explanation for the cause of the Great Depression. His economic theory was based on a circular flow of money, which refers to the idea that when spending increases in an economy, earnings also increase, which can lead to even more spending and earnings. Keynes' ideas spawned numerous interventionist economic policies during the Great Depression.
In Keynes' theory, one person's spending goes towards another person's earnings, and when that person spends his or her earnings, he or she is, in effect, supporting another person's earnings. This cycle continues on and helps support a normal, functioning economy. When the Great Depression hit, people's natural reaction was to hoard their money. Under Keynes' theory, this stopped the circular flow of money, keeping the economy at a standstill.
Keynes' solution to this poor economic state was to "prime the pump." He argued that the government should step in to increase spending, either by increasing the money supply or by actually buying things itself. During the Great Depression, however, this was not a popular solution. It is said, however, that the massive defense spending that United States president Franklin Delano Roosevelt initiated helped revive the U.S. economy.
Keynesian economics advocates for the public sector to step in to assist the economy generally, which is a significant departure from popular economic thought that preceded it — laissez-faire capitalism. Laissez-faire capitalism supported the exclusion of the public sector in the market. The belief was that an unfettered market would achieve balance on its own.
The proponents of free-market capitalism include the Austrian School of economic thought. One of its founders, Friedrich von Hayek, lived in England at the same time as Keynes. The two men had a public rivalry for many years because of their opposing thoughts on the role of the state in the economic lives of individuals.
Keynesian economics warns against the practice of too much saving and not enough consumption, or spending, in an economy. It also supports considerable redistribution of wealth, when needed. Keynesian economics further concludes that there is a pragmatic reason for the massive redistribution of wealth: if the poorer segments of society are given sums of money, they will likely spend it, rather than save it, thus promoting economic growth. Another central idea of Keynesian economics is that trends in the macroeconomic level can disproportionately influence consumer behavior at the micro-level.
This whole article is about the government's opinion. They don't actually know what happened.
In other words, just print money?
I just scanned the article and the comments. I don't have the time right now, and until I read more I really don't know if I fundamentally agree or disagree with his core economic philosophy. One thing that jumped out at me was his insight concerning giving financial assistance to low income families and/or individuals. I agree, they are more apt to spend it than save it. No judgements, I just have seen this to be true.
So, if giving away (redistributing) wealth to the lower income Americans just might be a good thing simply because of Keyes' observations regarding that that money will most likely be spent and go right back into the economy. Interesting. There may be something to that. I haven't read enough to know if I generally believe all his concepts to be sound, or at least make sense to me.
I have enjoyed the posts and discussions in the marketplace of supply and demand of ideas.
Communism is an equilibrium, but an unstable one. If you want an ideal society with ideal people, you need a society that is balanced out of its natural animal state. All life on earth is in natural competition with itself for resources.
If you have any reversion to primitive drives, which are literally central to the human brain, you have a dystopia. And as unpredictable as resources are, you'd have better luck balancing a pencil on its tip in the middle of a windy plain.
The difference between socialism and communism is that the first one is a transitional phase in between capitalism and communism. The world, as a matter of fact, has never experienced real Marxist, theoretical, communism, since it is supposed to represent the peak of human development and evolution.
The real communism is like Nirvana: an ideal society with ideal people. People are perfect, there are no states, no hate or wars. Everyone works for pleasure and for the sake of personal and social development. There is no greed or envy, everyone is equal, even when they compete among themselves. Yes, it is utopian, but not malicious.
What we had as a system, was socialism, Leninism and Stalinism. Karl Marx never predicted that socialism would be achieved in feudal societies, like Russia was. He predicted that socialism would be achieved in Great Britain, USA, Germany and similar economically developed countries and the societies where the working class was established.
As for Keynes, I appreciate his work and the idea, being a staunch social-democrat. There should be less personal greed among the super wealthy individuals who influence governments the most. Distribute the wealth, not simply by feeding the poor, but by educating them, giving them a chance and the opportunity. Lift the wages of the poorest, and substantially. People do not need personal planes, luxury yachts 200 m long or gold plated toilets. Profit and greed are to be blamed for the worldwide crisis.
How many rich people pay their fair duties and taxes to their countries? How many offshore accounts are there, as well as safe heavens to avoid taxes? That's the ugly face of liberal capitalism. The rich are richer, the poor are poorer, and the middle class is disappearing.
Keynesian economics, by supporting government intervention, leads to: Confiscatory taxation; redistribution of wealth; a nanny state; class warfare; low interest rates leading to increased speculation and risk (since you get little return from traditional savings); the destruction of national sovereignty; increased immigration of unskilled labor; endless wars and militarization of society (since defense spending leads to the cycle of monetary flow); consumerism (read materialism and narcissism); Bloated and intrusive government bureaucracy.
Government is never the solution. Never. What is government but a cabal of people given power? Huh? Power corrupts and absolute power (which is what we are heading towards) corrupts absolutely.
What a bogus economic policy. Reward the the rabble at the expense of the productive populace. Pure communism at its basic tenets.
Keynesian Economics is good on paper, and just like communism, in practice it does not work. Are there any European countries about to go under? Keynesian economics, like communism requires someone in power and as we know, even the well intentioned get corrupted by power and money.
What strikes me in many of the posts is the desire to put people in classes. I am not wealthy, but I am in the same “class” and the so called upper class. Just because some have lots of money is far from saying they are better than I am. For those of you persisting in putting people in “classes,” you are putting yourself over someone, or putting yourself under someone.
Those who believe in the benefits of Keynesian Economics are those who don't care about the future. Those are the only ones who can possibly accept its ideas. Real free market capitalism (not crony capitalism) is the only proven system that can provide wealth and opportunity to all. In a real free market, monopolies, corruption and all other evils are unable to exist.
The people who commented how great things were when Clinton was president, truly have not done any research whatsoever. Most of the laws passed by Clinton did not take effect until after he was out of office. (Imagine that!)
While in office, Clinton cut over 10,000 border patrol jobs then later opened 1,000 border patrol jobs and had the media make out like he was creating jobs and such a great guy. (Not) He cut most of the remaining aid to our farmers which destroyed many of our remaining small farmers who could not compete against corporate farms. (Thanks to Willie Nelson for trying to help with Farm Aid for years).
Clinton also cut welfare, which is barely a speck of our actual spending, but if you go back to originally setup, our federal funds were to pay for education, aid to the poor and poverty stricken (here not in other countries), some military protection and support (not for other countries), infrastructure and churches. Well they have cut churches, and most of the aid to the poor and infrastructure.
As of 2013 we will have a huge cut to the infrastructure (which is crumbling) and education (which is crumbling) and to military/defense, while a privately owned banking cartel controls our money in order for them and the banking industries to earn huge profits (called the Federal Reserve). Just research Federal Reserve and what the Americans should know about it. You will start learning what really happened to our economy.
The GOP wanted the economy to tank under Obama's watch. It is common sense if we had put money into infrastructure, the jobs created would have put money in peoples pockets, and they would have spent it.
I own a business. If my taxes were zero, it would not cause me to hire more help. What made my business successful was the line of customers who had money to spend. I've been in business for 25 years, Clinton time was fantastic, and things were good until Bush destroyed the economy in his quest to break the social commitments we have to our fellow human beings.
Business now is completely different, all due to the GOP.
The root of all these problems is usury and fractional reserve banking. Both are unethical and immoral.
We live in a system that enslaves the population while enriching the nonproductive elite bankers and wall street speculators.
Money is supposed to be a store of value, but we have "decreed value" "paper units of exchange" that are constantly being debased / inflated, which equals theft.
I must ask all future readers to pardon my American perspective. Perspectives resulting from accidents of birth are, of course, such poor marks on an individual's credibility as a thinker.
I've noticed an extremely disturbing trend on both sides of the Atlantic. People act as if Keynesian Economics and laissez-faire capitalism are distinct theories. They say that the two are opposed to each other, and pretend that one must choose between them instead of taking the enlightened, educated route, and extracting the grains of truth present in each.
Keynesian economics is quite plainly right in its statement that spending supports earning. The only two businesses that can survive without business are subsistence farms and hunter-gatherer societies. Any other form of business depends entirely upon the fair trade and beneficence of its customers, and more importantly, they depend upon the continued ability of those customers to trade fairly and buy beneficently. When businesses destroy the wealth of their customers, they lose their potential for business.
Laissez-faire capitalism is also quite plainly right in its statement that individuals will not work if they do not have to. I think we must all recognize our inner drive to export our problems. Most people, for example, will not build themselves a home by hand if they have the money to pay for the home of someone else. Rich people find it easier to pay for a maid than to vacuum their floors. The American poor found it easier to buy from China/Walmart than from now-extinct American competitors.
Since it is true that wealthy consumers create healthy economies, and since it is true that work is the only just prerequisite to wealth, the primary goal of economics should be twofold:
First, for the sake of the business of the individual, it must ensure that the total population has a high median purchasing power, in order that there may be enough business to support free enterprise, and it must do it without robbing the rich to feed the poor.
Second, for the sake of the broader society, it must ensure that all people are working to their highest potential, in order that there may be enough labor to fill the needs of all individuals, and it must do it without relying upon the desperation of the destitute.
Speaking generally, America is easily recognized as having heavily failed the first goal. As a poor proletarian, I can personally attest that an American-sized wage disparity is not the result of a similar disparity in the effort put forth by the poor as compared to the rich. It can only come from an injustice in the system of distribution, a system in which some are paid more money for doing less work, and for accomplishing less for society. In a way, this puts America in severe danger of failing the second goal, because a society which rewards labor with poverty cannot possibly inspire the maximum potential of work.
Again speaking generally, Europe is easily recognized as having failed the second goal. When laws are passed demanding that individuals be given inordinate amounts of time away from work, that aspect of justice fails in which one earns one's rest. In a way, this puts Europe in severe danger of someday failing the first goal. Individuals who do not each earn the cushion of luxury they enjoy are unable to maintain collectively a stable and sustainable society.
What we need most dearly in the Western world is a justice which encompasses both individual rights and societal responsibilities. The leaders of Europe must learn to reward labor and not mere existence, while the leaders of America must learn to reward labor and not mere power. Without such justice, the pan-Atlantic Euro-American society will fall together into the oligarchic feudalism of the past, through debt to commerce and to the triple giants of government responsibility, economic prosperity and national security.
The three biggest lies I've ever heard are that we must guard the purity of justice only against Washington's corruption, only against Wall Street's greed, or only against West Point's control. The heart of this matter is that the three are one, and that their power to destroy true justice here on earth has the potential to surpass all but God alone. You may believe if you wish that the powerful have worthy goals, that they are enlightened, that they are doing their best to work for the good of all, but look around you! They are not doing the good of all! It matters not whether the source is corruption or mere incompetence, for the two have identical effects and solutions: despotism removed by revolution.
Anyone still reading this post is sure to be familiar with the fairy tale of the American Revolution. I call it a fairy tale because I sincerely doubt the rhetoric on both sides of the American aisle, which grants it some kind of regal, idealistic fantasy, instead of the realistic sense of revolutionary desperation which we down here in the real world can easily understand.
The American Revolution should never have become a starting point on which we built our present society; it should have been the entire society, summed up in a document and re-enacted by every generation. Stable peace lies at the heart of a good economy, but Pax Romana can never lie at the heart of a just one. If justice is to reside in the West, then we all must ensure that the rich are not allowed to use the power of their money to gain more economic power, in the same way that we must ensure that governments are not allowed to use the power of their authority to gain more authoritarian power.
What we need is a Revolution. No, not just another revolution of the American, French, Bolshevik, or Glorious kinds, for all of these were revolutions of power, in which individuals hoped to gain the power and authority to liberate man. What we need is a new kind of revolution, one against the very idea of power, a revolution of the heart and mind in which individuals recognize the need for justice in all facets of society.
Unfortunately, such revolutions are in short supply, so here's what I propose for America:
Low individual taxes, few government welfare programs, high funding for education and moderate funding for health per individual, but cuts to both the health and education bureaucracies.
Military cuts and a Constitutional amendment which forbids the president from sending troops beyond the national borders except in time of war.
An amendment setting term limits to two for all public offices except the President, who would be restricted to a single six-year term.
Ban on political advertising during campaign years, except by the candidates themselves, who would be limited to a set amount of total campaign spending, regardless of the amount they actually raise.
Banning all registered lobbyists from the grounds of the U.S. Capitol, even apart from professional duties, during times when Congress is in session.
High corporate taxes, but tax breaks for companies that meet certain criteria, such as low wage disparity, high median and lower-quartile incomes, and high total domestic employment.
These are the original ideas of a poor teenage product of education at a public institution. Most Congresspeople were educated at great expense by their upper-class families. Why then, are they the ones who must be called extremists?
To the anon below, in country do you live? Also, allow me to ask: Do you believe in independence or dependency in every day life? Do you believe that conduct has something to say with how a person's life turns out?
Do you believe that government - without question always corrupt through all time - can regulate human behavior to good conduct?
And do you believe that the use of logic supporting a belief is racism? A renowned professor argued in a paper that it was.
Before answering the last question make sure you know the correct definitions of "racism," "bigotry," and "prejudice."
Just making sure we're on the same page.
Great article on Keynesian economics! Laissez-faire capitalism doesn't work. If you Yanks can't see that yet, you are doomed to sink even farther than you are already. I hope you enjoy civil war. Remember, your poor still have the second amendment. Look at what is happening in Latin America. They are starting to recover from the disaster that was Milton Friedman and they are doing just fine.
OK. There is no consensus that "Keynesian Economics" and "Macroeconomics" are interchangeable. Any high schooler in an economics class can tell you that.
It is interesting that, even in the current climate, the majority of comments below are rather right-leaning. Watching from across the atlantic, the feeling is that America has lurched a little too far to the right in recent years and may be developing some serious long-term social problems.
It is also interesting that ethics is so rarely raised by the Americans. Allowing people to work hard and get rich, even if they are gambling or taking advantage of other people is rather at odds with the popular European view of how economics should work. Economic policies have a very important influence on society, and surely we should aim for an ethical society?
Post 71 at least delivers some clarity and balanced perspective. I would recommend reading it.
What does hoarding mean? Do people stash money under their mattresses? How is greater savings not equal greater investment? And if it is investment, how is it not wealth building and employment generating?
It would be reasonable to say that when there is an economic bubble burst, people become more cautious, less certain about the stability of the “system” (think about how much we rely on trust that those we transact with are not cheating us, how much we rely on predictability of institutions, etc.). Maybe more to the point, they doubt reliability of information [transmitted to them in prices of goods and services]. Everything looks riskier and they become more conservative in their investments. When fewer economic risks are taking, the growth is going to be slower. Not exactly hording or liquidity trap, the money is still going into the financial system, but it's definitely something to address. Yet…
Keynesians assume that this drop in "confidence" is not justified, that the reason for the initial bust is an irrational panic. For that to be true, whatever we call a “bubble” must not be a bubble at all. Keynesians must be implicitly viewing pre 2008 run up in housing prices real, not the result of the Fed’s loose monetary policy, but real sustainable (economic) demand for housing. This however, is hard to believe given the rate of housing appreciation relative to productivity, per capital GDP or income measures in the same period of time, particularly in the context of other sectors of the economy not slumping at the same time (so it wasn’t like people switched from spending money on food to housing.) It is then also hard to then understand by something real would burst like a bubble.
It seems much more plausible that there was a speculative unsustainable run up first – a bubble, which upon running of steam (the Fed couldn’t loosen the money supply any more), burst in an accelerating sell off (a panic, much like what would happen when a Ponzi scheme runs out of people to sell it to.)
If that is the version of the events, then the resulting increase in conservatism of individual investors is well justified and reflective of reality in at least two ways:
1. Real wealth was destroyed; the waste of resources was real. Resources poured into building houses, from building materials to machinery producing building materials, from construction labor to training of construction workers, were configured and used and to a large extend irreversibly used up without any ultimate payoff (improvement in the standard of living). When people find themselves poorer than before, on average they take fewer investment risks than before (in a casino, one would gamble more freely with yesterday’s slot machine winnings than with the savings one had before that).
2. The fundamental cause of the bubble -- government manipulation of the money supply -- is still there. The opaque nature of the fed-financial industry complex is still in place. And so is the high uncertainty about the future. Is the XYZ investment looking attractive because it fundamentally is, or is it part of another bubble?
So then, how does trying to fool investors again help the economy?
I would disagree with the wise geek that a military economy is Keynesian economy or that Keynesian policies were unpopular in the 1930s. FDRs mammoth public works projects were essentially Keynesian and did not work. Post 103, you exemplify a basic misunderstanding of wealth. Wealth is nothing more then what people desire and are willing to sacrifice to get. It is the act of producing something that people desire that is the essence of creating wealth. As in a insurance company, it sells peace of mind.
Intangible things like peace of mind and enjoyment are products people are willing to pay for just as much as food and clothing. If people desire it and are willing to pay a price to get it then it is a product. Everything starts with producing a product. Only if there is something desirable can there be exchange. As far as businesses that loose money, they do not stay around very long.
Redistribution of wealth doesn't have to be a "give-away." Under Keynesian economics, the stimulus money could be used to give the unemployed jobs. In the case of our economy, we should have a stimulus that promotes infrastructure. We know that we have crumbling infrastructure around the country, so that would be a net gain, and by paying more construction workers, they will be able to go out and buy products, thereby increasing demand, causing companies to hire in order to keep up, thus creating more jobs, more demand, and around and around we go.
While this sounds great, I know that it's only a principal and doesn't necessarily work as well in practice, but then again nothing does. All I know, is that I would rather provide middle and lower class people with jobs, when I know that they are going to spend every single dime they earn, than give greater tax breaks to the rich who may or may not spend the money.
I've read post 82 as directed and do not agree.
Of course, income is a function of spending.
Where else is it you think the income would come from?
Production does not equal income. This assumes everything produced will be sold at profit.
It is pretty easy to find examples where produced goods are not sold at all or not at profit.
It is also easy to find examples of income where no production exists - insurance company profits for example. No. Profit comes from spending, not production.
If spending = income then the government could simply make the minimum wage to be $100 per hour and print some money to meet that. Spending is not income, production = income. Keynes was an idiot in his own right. He thought that if you call something "the general theory" then it will automatically work (I guess since it worked for Einstein).
For those of you who don't understand, read post 82.
Either side can claim simplicity of argument. Supply siders will say that low taxation and deregulation will free up capital and allow the rich to produce the products that will entice demand for consumption. The demand siders will claim that with higher taxes on the rich public investment will free up expendable income from the middle class and poor, and that will drive consumption. Both sides have some evidence to back up their claims.
The next step is to look at historical examples of these arguments in context with today.
The argument that lowing taxes on the rich creates more capital and therefore more supply, which creates a need to jobs, is valid, as long as you have a producer class that A. Employs people here in America (which is not the case) and B. Is already taxed at a high rate, which is not the case. The wealthiest people in America pay about 15 percent in taxes, which is lower than the middle class tax rate of 28 percent.
The demand side logic finds more traction. People in this country have only seen wages decrease in comparison to the costs of living for the last 40 years. The vast majority of Americans are getting poorer. Real unemployment numbers are difficult for nail down, since once people give up using government assistance we don’t track them. Let's just say the number is high, and there are a lot of people out of work, that would like to work. There are record high foreclosures on homes, and in general people are hurting. There’s not enough money on the demand side to drive commerce.
The last thing we want to do now is take away programs that are freeing up capital on the demand side.
Business owners don’t want a tax break as much as they want more customers.
To the question on the difference separating socialism from communism, the answer: not much.
Except the governments who proudly call themselves communists make sure that the pursuit of happiness, or property, is not a goal of individual citizens.
John Maynard Keynes never addressed that a mountain of evidence shows economics procedures work the same way whether in government handling or individual handling of money. In other words, it's hard to dig out of debt by increasing debt, wouldn't you agree?
Not forgetting, as in the Great Depression, wealthy big American companies - including banks, all of high regulation - dance to the tune of the federal government pulling its powerful levers in order to maintain high profits.
So, you see, big companies to continue making high profits sell their soul to the devil, and the devil happens to be an enlarging federal government.
Principles of money and power are used to trump principles of character. Eventually everyone in a free nation loses.
As a professor, I tell my students that problems are easily recognizable, and the remedies - as hard to swallow as they might be - are really quite simple.
Nothing is as complicated as made out to be.
In nearly all circumstances, if the poor aren't to blame for their own poverty, who is?
Everyone in life in America is born into a family of a measure of wealth or a complete lack of wealth, or poverty.
Yet regardless of luck in birth, in traditional America, a free-enterprise capitalistic society opportunity is always available for people to make of themselves what they desire to be.
I suppose then, that the flaw isn't found in the free-enterprise concept, rather the flaw ruining people in poverty is found in the people themselves.
So in general, could poverty be a character issue?
Redistribution of wealth doesn't seem fair to me. Whether wealth is acquired by the individual or inherited, someone in the family worked hard, took a risk and got lucky, or both in order to earn their money.
I'm not saying that the poor are to blame for their own poverty, but giving them someone else's money is hardly a solution. That reminds me- can anyone explain what the difference is between socialism and communism?
Burn the stagnant worthless model economics books to clutter the minds of college students, and decimate the corporations that took the jobs away from america and gave them to foreign outsourcing. Deny these bards profits, restart our own production, encircle their oil and energy supplies, and charge them taxes so they pop into oblivion. Then, getting rid of all the bankers and corrupt investors is a spanking good bloody revolution!
"if the poorer segments of society are given sums of money, they will likely spend it, rather than save it, thus promoting economic growth."
Not possible when the banks received all the bailout money. They get rewarded for producing no goods or services and tax the public through interest. What?
It's not at all a new idea, blaming the poor for their own poverty. That same sort of belittling of the majority kept the guillotine busy for a large part of the 18th and 19th centuries. --Nic
Keynesian Economics was never meant to be use for long periods of time, but rather it was only suppose to "jump start" the economic system. I believe it did just that, albeit because of a war, though it continued to be used in the sense that government grew exponentially over the next few decades.
There should be a healthy balance with everything.
Well, he really was a genius. Just think if he would have not given these reasons and findings you all would have no base/matter to argue on. At least he showed some path. On those assumptions and theories, we can modify to suit to the conditions.
I think it's wrong to say that no regulation = capitalism. Captialism, regulated or not, is just an economic system based upon the use of money for the trading of goods and services.
It seems to me that laissez-faire (unregulated) capitalism is a detriment to free trade, because it breeds collusion among owners and creates trusts and monopolies and it exploits workers to work for the lowest possible wages. It eliminates the middle class and returns us to the Middle Ages.
this is very good and comprehensive explanation of keynesian economic theory. however, there is the issue of interest rates, which keynes used as a liquidity trap on which the demand for money based is important.
Why do you all use politically motivated reasoning to explain why you agree or disagree with an economic rationale? Surely the important thing is whether the theory works and can be tested then if it agrees with your political views. Is this why America cannot see the problem and then solve it as it has in the past.
To the post on 71. It is not ethical for the government to take from one and give to another to "spur" on the economy (which has not and does not work) under guise of Keynes justification.
The role of the federal government is to provide national protective and infrastructure services. At the point they started giving my money to someone who did not earn it is the point where they legalized theft, created a nanny state, started legalized bribes for political votes, and started us on a spiral that only those with real intestinal fortitude on the Hill (like Ron Paul who has been saying this for 30+ years) can stop and reverse and eventually abolish these practices Constitutionally (which will be great when congress starts adhering to it).
Keynes was a math man. Not an economist. He is looking at the economy as a math problem that needs a formula to make it make sense to him. (Ulterior motives are worth investigating and in fact have been!)
"All Spending = All Income" is a math formula. It is not an economic principle.
Economic principles are the explanations of the cause and affects surrounding the forces of demand and supply and more importantly the general finding of Mises in one of man's greatest books ever written "Human Action" (free online in pdf now!).
Economies are driven by humans acting. The less incentive they have to work, the less they work. The more incentive they have to spend, the more they spend.
Though the same money is often used in the labor and consumer activity, it is not the case that all spending - equals - all income. If that theory were true, then why do we have the highest government spending and debt rate and we have doubled our unemployment rate? It doesn't "add up."
It would have been better if Keynes tried to cross pollinate his knowledge into biology or the chess club. At least he would not have had such a negative affect on the economy.
In addition, Keynes had many conflicts of interest himself. Pun intended.
If you want real economic understanding you have to move away from math formulas and toward the Austrian School of Economics. This will open your mind to the truth you have watched unfold before your eyes in this age.
Sometimes I wonder if economics is just a fairy-tale story. I am losing respect for this discipline and its limitations.
It might be time for me to switch to a more useful major. Who's with me?
If this is the richest country in the world, why can no one afford to live here anymore?
I think most of the people who have commented here are ignorant and should read their text books again. Friedman was not a proponent of free trade and capitalism and did not recognize greed? Give me a break! He was the one who said greed marks the upward surge of innovation.
Without greed, there is no reason to work hard and get ahead of everyone else because the government otherwise will always be holding your hand and taking money out of your pocket and giving it to people who don't have the motivation and drive too work for themselves.
Capitalism without strict regulation, in fact with no regulation is capitalism, i.e., a free market.
Capitalism with strict regulation is economic fascism, not capitalism and not a free market.
Poor USA, capitalism, and free market: an example not to follow worldwide.
USA and its military budget will bring the country to bankruptcy.
If Bush was still there, I believe USA would disappear from the maps.
Money, like water has no value unless it is moving. Keynes would love that statement. Friedman and the pure free market proponents did not consider that people exhibit greed and foster fraud in their efforts that are not at least observed if not regulated by an entity that has no vested interest in the outcome. It is too bad that the US government doesn't qualify in that capacity. It has just as much of a vested interest in the outcome as did Bernie Madoff.
I do support the Keynesian concept of government intervention in the economy since the economy is not a purely disinterested entity. It is made up of people, of all things. People need to eat.
I work in the public transportation planning industry and we have a tongue-in-cheek saying, "If it weren't for all our customers we would always be on time." If it weren't that people live in those investments, the mortgage industry would be purely mathematical.
While we argue the politics of economic policy, we must not ignore that that without the people earning and spending money there would be no economy in which to invest and become wealthy without labor.
Yes, I sound socialist now, but we must exist in a system that both makes it possible to live without labor and live by our labors.
We must face the facts that the economy as it is does not support everyone having productive gainful employment. This is good if you are approaching an age where you would like to retire and live off your prior labors. Our economy makes this possible through a combination of SSI and private wealth accrual.
I want both. We need both.
If you want to know who really cares for the poor and downtrodden, just look at the amounts of charitable contributions that Joe Biden and Obama made (before running for Pres.) and that of John McCain and other wealthy people. And look at the money that the Democratic and Republican "progressives" spend on themselves at taxpayer expense.
Term limits are the only solution to curtailing government corruption, a national sales tax instead of income tax the only fair way to "tax" everyone, and not voting for lawyers and academics for office the only power left to the American people.
@anon 67: about two percent of what you said happened to be true. keynes was an idiot and the only reason his theories are so widely accepted by our government is because they rationalize the expansion of government power in an economic form on paper.
This makes the government's power growth "OK" when, in fact, it truly is not. And to address your comment on trickle down only causing temporary economic gains, well most of that is not because "trickle down" doesn't work, it's because the Keynes theory allowed for the government to have too much power over the private sector, stifling the "trickle down" idea once it is implemented via regulations and allowing super companies to be formed via kickbacks and turning the cheek to some companies and not others.
keynes leads to out of control power and corruption of government. don't mind my spelling. it's late, I'm tired and not punctuating.
It is interesting that in all the discussions, not one word concerning ethics was mentioned. Some say that redistribution is rewarding the lazy and unproductive. Others claim that through hard work anyone can become rich. Neither argument implies that there is any role for ethics in economics.
If people gain wealth through injustice, how are they worthy of that wealth? And if a society has an obvious uneven playing field is government socialistic if it intervenes and affords redistribution to support those who have been abused by a system that supports the growth of wealth, regardless of the tactics used to acquire that wealth?
No system of economics can function outside the realm of human realities. Capitalism without ethics is cannibalism. I believe the American model has morphed into cannibalism as capitalism.
Redistribution of wealth at least affords some recognition of ethics, and that the playing field needs to be leveled because it benefits all.
I do not reject a mans ability to gain wealth. I do, however, reject that ability if it is based on the deliberate and forced poverty of others. There is nothing noble about wealth acquired by these means, and economics without a moral or ethical code is merely survivalism at any cost. Any economy that fosters barbarism is a failed economy.
And lastly, can Capitalism truly flourish under oligarchy? Economies must work for all within society or society ceases to exist.
"Keynesianism" is a religion.
It relies on the ignorance and unquestioning obedience of its followers, because asking questions immediately exposes the absurd fallacies upon which it is based.
Anyone with a modicum of the capacity for ratiocination (the ability to reason), can immediately see the absurdity of the premises, the foolishness of the conclusions, and can deduce why it is, in fact, that Keynesianism is good for parasitic governments, and bad for people.
Keynes, of course, was always and ever on the side of, and in the pockets of, parasitic governments (learn about his life), and his sycophancy towards them is all that is required to explain the origin of his nonsensical axioms and the absurd conclusions which result from them.
Read "Human Action", or "Man, Economy, and State" if you want to understand economics. Read the "General Theory" if you want to get a laugh - but whatever you do, don't apply it in your own life, or you will unquestionably be impoverished.
Critics are missing a valuable point as far as Keynesian theory goes. It's been tried, tested and relied upon since the depression of 1929.
We have neither a complete free market economy, nor have we had a complete control economy. We have a balance of both. We've been operating under Keynesian principles since the Great Depression, and it's only in recent years that a rebirth of classical theory- a.k.a. trickle down supply side, was reintroduced.
The result of this has led to record deficits preceded first by immediate temporary economic gains.
So we know two things about Keynes at least:
1) His model has been used since the depression and thus responsible for the steady economy in the US and abroad, e.g., The prosperity of the 1950's was due to Keynes. So yes, it's been tested, implemented has has been working.
2) For ideological purists and fans of laissez- faire, any government involvement in the markets is socialism and therefore wrong, just as for a communist any involvement of the free market is wrong. Both ideas miss the mark, and have repeatedly in practice. Keynes is a balance of both.
3) Even opponents of Keynes uses Keynesian tactics. Bush's advice after 9-11 was to go shopping. He propped up banks and bailed out companies to avert a greater catastrophe, abandoning his "markets know best" philosophy when it came to brass tacks because he knew better than to gamble the US and world economy on ideological purity- much to his party's dismay.
4) It's stabilized markets and created and strengthened the middle class. The great society and prosperity of the 1950s happened under Keynesian principles, and the economic prosperity of the 60s and 90's as well- so please don't discount the importance or effect of this man's ideas and work.
Investing in the infrastructure, schools, higher education, support of new technologies- like the internet, happened from the government, not just the market.
Ideological purists would let the middle class disappear rather than appear socialist- and really the ideological purist is Keynes' greatest enemy, just as history is his greatest friend.
There has always been a balance between that which government must spend in order to create the infrastructure the free markets need for growth. That is why Cash for Clunkers failed so badly. Keynesian economics is meant to support growth.
Used any other way it not only must fail but is certain to. Government will never be able to usurp the role of the free markets and the same is true in reverse. It's a balancing act and right now the whole system is out of balance.
Wonder who's to blame? History pointed to the greed of the stock market back in the 1930's. I suspect the real estate market this time. But so far the feds have not handled things very well. And they should have hanged Bernie Madoff for treason.
The Keynesian economic theory is a lot like the socialist government theory. It sound good on paper but doesn't work in reality. After all it is a theory and theories don't actually have to work -- after all they are just theories, not practice.
John Maynard Keynes starts with “one person's spendings”. However in order to have money to spend one must have a job or business to generate revenue and profits. Maybe a “redistribution of income” addendum to his economic theory would make it work for a while in a socialist nation, but ultimately like socialism, Keynesian economics can not sustain itself.
It isn't perpetual motion, which also sounds good in theory, but has never worked.
I agree with the first comment here by anon9418. The article on Keynesian economics is an excellent starting point for those who want to learn more about the subject.
The main conflict between Keynes and the Austrian School of Economics has been referenced in the comments about the article.
I would add that the the left-leaning politicians (Obama and most Democrats in America, New Labour in Britain, some prominent EU politicians) support the Keynesian theory. But I also believe that they are abusing the teachings Keynes brought into the British government. They are clearly using his name and theory for cover for excessive amounts of borrowing, debt and big government that have little to do with Keynes's original vision.
I read somewhere that the British government was actually paying off debts when Keynes first came into politics (a completely different position to now where Britain is already drowning in a sea of red ink).
Now on to their opponents.
The right-leaning politicians (the Republicans in America, the Conservative-Liberal Coalition government in Britain and some politicians in Germany) are more closely aligned to the Austrian School. The general priority for policy-making among these groups at the moment is restoring confidence in the running of the economy by government, as well as confidence in the currency and credible plans to keep inflation muted so that interest rates stay as low as possible for as long as possible.
This means taking aggressive fiscal consolidation measures such as the £113 billion total currently envisaged by the British government. Republicans in America issued an Alternative GOP Budget, which proposes a significant fiscal consolidation, although it seems unlikely in my view that this will be enough.
I may be wrong here but I heard the German government took action last year on a fiscal consolidation that involved cutting the deficit starting from 2010. And in the second quarter GDP growth for Germany at 2.2 percent (quarter-on-quarter). Is fiscal consolidation supporting export recovery in the German economy? My guess is yes.
I oppose the bogus "Keynesianism" left-leaning governments espouse today. I don't think it adheres to his original vision and that governments are using his name as a scapegoat.
I think the bogus "Keynesianism" will lead America down a lost decade just like Japan unless someone turns off Obama's borrowing taps very soon.
The depth of the recession was made longer by bogus "Keynesianism" in my opinion and is the reason why the global recovery is fragile. Obama, the Federal Reserve, the Bank of England and New Labour all think that the problem is that there is not enough money in circulation and that the answer is to create more (via borrowing, printing directly from the Central Bank, or by the latest Federal Reserve policy of buying government bonds using interest from mortgage bonds on its portfolio).
This money printing exercise is counter-productive at every turn. I'll give the British example. In Britain, the Bank of England lowered its base rate from more than five percent in mid-2008 to just 0.5 percent in 2009. That's stimulus number one.
The British government implemented a budget that increased the deficit from less than £90 billion in 2008-09 to more than £140 billion in 2009-10. That's stimulus number two.
The Bank of England was pressured by the government to create a Quantitative Easing Scheme. A massive £200 billion was created, none of it backed up by anything at all. That was stimulus number three.
But there's more. There was a massive slump (on average 25 percent) in the value of the pound against other currencies back in late 2008. You might expect the result of this enormous stimulation to have been exponential economic growth right? Well, Britain's GDP slumped by 4.9 percent in 2009.
The Com-Lib Coalition is taking fast action in Britain to stop us from the "lost decade" prospect of Japan and Italy. I hope for America someone comes along to do the same there. My friendly advice - get rid of O'barmy and quick.
The Keynesian income-expenditure model assumes that the macro economy can be fine tuned and controlled in the same way as an engine in a car. Can anyone evaluate the validity of this assertion, please?
The "golden age" of Keynesian economics was actually 1933 to 1940 and it was not successful. Some historians actually claim that the Kennedy tax cut was Keynesian in principle. Can someone please explain that to me?
Letting people and businesses have some of their own money to improve their own standing and prosperity is more like Milton Friedman. We have gone from a national deficit of 170 billion in 2007 to 1.4 trillion in 2009.
I understand that we had the TARP bailout and a recession, but the original plan was for the TARP money to be a safety net for the financial markets. I'm afraid it has become a permanent expense.
Also one of the arguments for TARP was that a large amount would eventually be repaid or never used. Good luck on ever seeing that money again. The economic stimulus has not worked. Obama says unemployment could have been worse. Really?
John Keynes believed that money needs to circulate for economic growth to occur. Today consumer confidence is at historic lows. People and business are afraid to spend. Even Keynes might be a little worried. Why the pessimism? With the anti-business rhetoric, out of control spending and the threat of increased taxes, why should anyone be confident?
@anon92964: The Great Depression, Economic Recovery following World War II, hell... the entire era from the 1940's to the 1970's is considered the Golden Age of Keynes and saw much greater economic growth and expansion than either the short-lived monetarist era or Reagan's voodoo economic theory known as supply-side economics.
Hey we have two wars going on and yet we are in the worst (The Great) recession since the depression in 1929 and it's not pulling us out. Who's paying for the war? The banks have billions on their books but won't lend enough out to small businesses in order to create or maintain business.
So just what is it we are waiting for in order to get this economy rolling? The people scream for Obama to get the banks to loan us some of that money and they (banks) get an attitude when Obama pushes them to do what the people are thinking.
The people haven't forgotten about the last voodoo economics plan and it's a trickle down theory. The people want something that will last. Bush was tricked by the banks with its mortgage/banking industry scams supposing to stimulate the economy and it turned into an economic slaughter and we've yet to recover.
Regardless of political philosophy, name a time when, in a Keynesian psychosis, wild uncontrolled government spending pulled a nation out of recession and whizzed it on to economic prosperity.
One proven philosophy, however, is that the one consistency learned from history is that most people never learn.
An added historical reminder: In a nation of government controlling and regulating more and more establishing a soft tyranny, there's only one direction for the tyranny to go - to a harder one.
I'm not sure, anon85758, which two forms of economic policy you're referring to, but it really doesn't matter. Look at this way:
An organization like a well-run crime mob is corrupt, yet economically prosperous.
On the other hand, an everyday decent American family spends money like it's going out of style, but without enough income flowing in to cover the spending.
Is American sluggishness today from the introduction of Keynesian economics, or is it from a president who despises traditional America.
Article 1 most definitely existed before 1896.
Either form of economic policy would work if we weren't ravaged by corruption.
You've hit it, anon8445. As I'm also up to speed on economic principals of various economic systems, I - without hesitation - oppose every policy Obama proposes. He does not hide his contempt for the spirit of the everlasting Constitution.
In 1896 we had a depression almost as bad as 1929 and if that's not enough we can go back all the way back to 1794 when there was a lot of speculation on the market. It caused a dip in the economy and almost brought down the newly formed US government until Alexander Hamilton stepped in and used US securities to stabilize it. Oh, and by the way, the Articles of Confederation didn't allow the government to levy taxes and it failed.
When we adopted the Constitution in 1787, we did give the government the right to levy taxes but not income taxes, which the government got when we passed the 16th amendment.
By the way, there will always be recessions even in a pure capitalist economy. I'm an economics major and have been studying it for six years. I know what I'm talking about, and just so no one can call me a liberal, I'm a massive ronald reagan fan and don't agree with obama on anything.
I have some intelligence, but what in the hell is anon72432 talking about? - glenda
This Keynesian economics is sure a pretty excellent idea because we all need money to finance our basic needs and why can't we spend it when we have it because we all know that one day we'll die and live what belongs to the world to remain where its meant to be. Thumbs up to Keynesian.
Let's see if this clarifies, whether discussing Obamacare, or an economic system, or a government system, or practically anything.
A definition of "intellect" is the ability to grasp concepts quickly and manipulate them until an idea forms.
But not all ideas are good ideas. So, intelligence comes into play, which is taking an idea and assessing it to an understanding of human nature or an understanding of history in order to test to a realistic result.
Simply put: "intellect" + "judgment" = "intelligence."
Got it? So, I suppose that socialism, or social justice, or Obamacare, or marxism doesn't seem to equate to a very nice result, does it?
Contrary to a common belief, World War II did not end the Great Depression in the United States. Of course, unemployment naturally slid down, to near two percent, however, consumer production and consumer spending remained dismally low.
The Depression ended after Roosevelt died and after World War II, when President Harry Truman turned a friendlier face toward business and receded the government from the economy, and the economy resumed doing its thing.
“Capitalism without strict regulation will destroy any nation--including ours--and the real culprit, fundamentally, is that old enemy of any democratic country …” - anon25152
Capitalism without strict regulation, in fact with no regulation is capitalism, i.e., a free market.
‘Capitalism with strict regulation’ is economic fascism, not capitalism and not a free market.
“A nation requires a government which serves its citizens to survive--and to thrive.”
Such a government is that which the founding fathers devised in the Constitution of the United States.
I have listened to the massive ignorance, or perhaps lies, of recent years which claim diversity is the source of the greatness of America’s achievements. What incredible nonsense.
Diversity is everywhere. Take any group of people anywhere in the world and you have diversity, even in the most oppressive nations on the face of the earth like North Korea or Iran.
What fueled America’s success and hence her magnificent economic achievements, was the freedom for the individual to pursue his or her own dreams, his own self-betterment, his own self-interest. The rejection of altruism by the Founding Fathers provided the basis for that freedom.
It is derived from the seemingly simple idea expressed in the phrase, “… life, liberty and the pursuit of happiness …”
What is destroying America is the consistent and concerted efforts of collectivist career politicians on their forced march to a totalitarian collectivist society.
They have already in place for many years three major Communist stepping stones to that end: the progressive income tax, the inheritance tax and the ‘free education in a public [government run and controlled] school”.
Response 41 says there were no recessions or depressions in the 1800s. What have you been smoking?
To anon63486: You are spot on for the most part, but Article 1 Section 8, Para 1 gives Congress the power of taxation. Section 9 gives some restrictions on that taxation and Amendment 16 defines Income Tax.
I think the current administration has, hopefully, proven that Keynesian economics does not work. Supporters will point to FDR's use of it to end the Great Depression, but the U.S. entry in World War II played an enormous role in that. The public sector, in order to fill its role in the Keynesian model, must have a purpose. That purpose under FDR was preparing America to go to war. We do not need that now as we are already equipped and executing war on two fronts. If we want to use the Keynesian theory to help the economy, we need to look at it from the private side as the public side is maxed out.
Keynesian economics and a twenty-five-hundred page health-care dossier proves a point: Life is simple, it's people who complicate. kxl
Most of you need to do more homework. Many of the so-called "facts" spouted in these comments are utter nonsense.
Since classrooms can no longer be trusted not to distort historical facts to further political agendas, I recommend you spend some time in your libraries with simple little books chock full of facts. They're called "almanacs." For each year they show the federal budget, tax rates, actual tax revenues and outlays, and legislation affecting all of these. They also have elections and office holders for both federal and state legislative bodies as well as top administrative offices.
If you load a couple of decades' worth of this data in a spreadsheet, you'll see what I saw twenty years go. You might also realize that Democratic economic theory has shifted dramatically to the left since the 1960's. Jack Kennedy's economic policy was equally as supply-side as Reagan's and it was equally successful. It was Carter's "share the wealth" goals that broke the economic engine of America--just like Obama is doing now.
But both could only accomplish that with Democrats heavily dominating both Senate and House which were intent on increasing tax rates beyond what the American public could tolerate.
These macroeconomic theories are bunk because they leave out consideration of the fundamentals. These fundamentals have held true for every economy since at least the middle ages, whether run by kings, feudal lords, native village chiefs, or presidents of socialist dictatorships or democracies.
One, if you take too much of what people earn, they will stop earning by going on the "dole" or moving away or going underground. Two, the size of the economic "pie" is never fixed--it's either growing or shrinking. Keynes' macro theory completely leaves out the affects of taxation levels. It also ignores that most people are smart enough to realize when they're being robbed or cheated.
Even a 3-year-old will react if he "earns" two pennies and you come along and "take" one of them away. I dare you to test that.
The government cannot "fix" the size of the pie in order to share "too much" of it without causing shrinkage. That is, if it tries to share too much of my hard-earned wealth, I'm leaving. Bye-bye. Then your economy shrinks. We only have to look at the collapsed Soviet and Chinese economies of 20 years ago to see that Obama-Pelosi-Reid-onomics will follow the Soviet and Chinese "controlled" economies.
In fact, you only have to look at California over the last five years to see where OPR-onomics is taking us. That is simply because overtaxed economies fail--just like the pre-revolution economies of France (when Louis lost his head), Britain (King Charles lost his head, King George lost America, King John was forced to sign the Magna Carta), and all of the European countries that followed similar patterns.
The great waves of immigrants to America were driven by the economies they were running from and not the one they were running toward. Or simply look at Mexico.
From the "kingdom" of Maximilian to modern corrupt governments and drug lords, the Mexican economy has been burdened to the point that it has never thrived. Not for any period in 200 years. That's not because the Mexican people are lazy or stupid. It's because they never band together to "throw the bums out."
Keynesian or any other economic or monetary policies or manipulations cannot overcome the basics that make economic activity grow or shrink.
Too much theft through corruption or too much taxation by governments destroys individual economic drive. Period. No amount of monetary manipulation can convince people to work for nothing--or next to nothing.
The American Revolution was due solely to overtaxation and corruption. If you don't believe that, you need to read the correspondence among the founding fathers. They also did not include in the constitution the "right" of the federal government to levy taxes--not even to fund General Washington's army. They debated the issue and felt strongly enough that it was a "Pandora's box" that should not be opened even a crack, they decided to deny the federal government they were creating the right to levy taxes--even though they knew they would soon be facing the mightiest army the world had ever seen.
The liberal Supreme Court that "overrode" the Constitution did us a disservice and danced on the graves of our founding fathers. Please note that we had no recessions or depressions throughout the 1800's. Why? When was the federal income tax first enacted? We've had nothing but boom and bust every since.
What do we do now? I suggest we switch to a national sales tax (not on foods or medicines) that is the same for everyone. That will eliminate the overhead cost of running the IRS (at $20 Bil each year as of 20 years ago), lobbying costs to businesses trying to sway politicians for "tax breaks," accounting costs of businesses and individuals so that more people can be hired to produce goods or services instead of counting the beans for the government and looking for loopholes, ad infinitum.
I predict that if such a thing is ever accomplished, we'll see another 100 years of economic growth without boom or bust.
"Absolute power [to tax] corrupts absolutely." Always.
Poor Monty’s commentary: Stop and think! What important factor did Keynes leave out from his all two simple explanation of what caused or lengthened the great depression, that is people cutting back on spending their money, or this so called “hoarding”?
Answer: Keynes fails to answer the question of Why people significantly cut back their spending during the Great Depression. As was said in the “Matrix Reloaded” movie, “Why” is all important because knowing “Why” gives a person power and not knowing the “Why” or Why’s of a thing means not having the power to find the correct solution to a problem.
So what makes people either increase or decrease their spending? What makes a person in the private sector or a person in a business increase or decrease their spending?
It is so simple that I should not even have to say it, but I feel compelled to say it because people are being brainwashed into a new government dependent mode of thinking that is blocking all too many minds from thinking and reasoning critically; people increase their spending when they feel that the status of their own personal economic situation is either good or getting better and people rightly begin to decrease their spending when the opposite seems true to them.
Poor Monty’s commentary: Stop and think! If government spending on a massive scale, either by direct spending or by inflating a country's currency (inflation) could create real and sustaining wealth creation (and create worthwhile jobs), then how is it that we still have any economic problems at all?
Since the 1930’s we have experienced many serious economic recessions and downturns in the United States, and many people are saying that the current recession or downturn which started in or around 2007 or 2008 is the beginning of another Great Depression or that, at a minimum, it could turn from a recession into another world wide Great Depression.
So how is this even possible when the governments of the world have so completely adopted the Keynesian economic philosophy and model as fact, and have followed his advice so completely? The US government has, in recent years, greatly expanded the money supply (inflation), and has greatly increased government spending and yet our economy continues to lose jobs and lose wealth. So how is this possible? Why is this happening and what is the correct answer to this very important “Why”?
It is so simple. Read about Japan's lost decade, where the government of Japan tried to fix their troubled economy by dumping billions of dollars (paper and electronic money created out thin air) into their economy.
Japan tried a separate bail out type, stimulus type, helicopter drops of money into their economy and in Japan it did not do any good to their economy except to lengthen their recession from the normal year or two to a recession of over a decade!
In economic circles, this recession within Japan’s economy, which lasted over a decade, is called “The Lost Decade”.
And read books about the Great Depression of the 1930’s, and such books as “Roosevelt’s Follies”, or “The Forgotten Man” or “The Great Depression” will explain in detail the incontrovertible proof that: Socialism and big government solutions to problems, government bailouts of businesses, and government’s outright take over of businesses, government make work type programs like Roosevelt’s WPA program, high taxes, excessive and burdensome over regulation of people and of businesses, inflation (government expanding the money supply and creating money out of thin air) all make people who have the capacity to produce and the capacity to create wealth and create jobs nervous!
These types of unnecessary and damaging government interventions cause people both rich and poor, employer and employee, to slow their production down and cause them to take a very defensive position towards protecting the little wealth they have from further loss.
Then governments who are manned by power hungry people who for the most part just want more and more control over people cry, “Our economy is in trouble, we need more government spending to jump start our economy”. And then more paper currency (or electronic money, or money which is nothing more than numbers in a banks computer) is created or printed out of thin air and then this money is dumped into the economy in order to bring the economy out of its recession / depression and this in turn causes the need for more taxation and more re-distribution of wealth and more regulation of people and upon businesses.
Then, the very people who do know how to produce wealth will further retrench themselves into their defensive “Protect what you have mode of thinking”, causing more and more job loss and more and more loss of wealth. And this in turn causes more and more people who do not know how to create wealth or jobs, the common man who simply works for his wage, to spend less and less as he or she retrenches himself into his defensive position.
This is exemplified in the statement “I’ve just got to hold on to what I have as best as I can and wait for things to get better”. And then this decrease in consumer consumption causes more businesses to experience lost revenue and causes the socialists (Political leaders who believe in the fantasy of Keynesian Economics) in government to cry for more of the same policies which have created these problems in the first place.
And this all goes on and on, until some kind of balance is achieved in the economy, but this balance where things stop getting worse but where things don’t get appreciably better, will not be at a country’s true optimum level of production (job and wealth creation).
Instead this level of economic job and wealth production at that time will be at the country's “Good enough for now in these times” level, and will not appreciably improve until the damaging government interventionist policies are removed, or at least reduced enough so that the profit motive or the “What’s in it for me” motive can cause the people within the country who know how to create and to produce jobs and wealth to want to put their labor and their capital at risk again.
And this natural cycle of recovery is not shortened by government interventionist policies, rather it is greatly lengthened by it and the histories of all the world, including the history of Japan’s lost decade and the histories of America’s Great Depression prove it.
Governments do not create wealth, and when they take more wealth from people than they need to in order to fulfill only their legal or legitimate and limited roll then this taking of wealth begins to be seen for what it is and that is theft.
And it is this very theft of freedom and property from people which causes the speed of an economies recovery to slow down and or to keep it from recovering at all! The end.
To, again, anon54931: I'm a national reporter and columnist. I don't call myself a conservative one or a liberal one. I call myself a fact-finding one.
To anon54931: Where do you get the figure that middle-class workers in Canada work 200 hours more annually than the wealthy do? Do the business owners there punch a time clock?
To anon54024: Let me help you understand.
President Roosevelt followed an understanding of Keynesian economics, but he was more driven by his own experimentation, as he said. He had a "Brains Trust" in his administration, made of academia. And the President and his Brains Trust came up with a jobs program under the Works Progress Administration (WPA) in 1935, creating federal jobs for infrastructural projects, replacing the Federal Emergency Relief Administration (FERA) of 1933, which created welfare and zapped the spirit of the unemployed who quit looking for work and instead settled on government nurturing. In effect, a government patch over government patch. When has that ever worked?
The two programs profoundly changed the American work ethic. They caused an abandoning of self reliance to government reliance, like the extended unemployment compensation of today.
At first glance, the New Deal's works program seemed a solution to unemployment. But in government laundering, nothing comes out in the wash. Some of the built WPA public works projects added value, but many dismally built projects of the WPA, also mockingly known as Workers Piddling Around, had to be torn down and rebuilt. The works program wasn't a mending, after all. High unemployment remained high unemployment.
Stop and think. Government creates nothing with the exception of more problems, very rarely solutions. Who paid for the WPA government laborers? The taxpayers of course, which means they had less money to spend on goods like coats, washing machines and refrigerators.
When consumer demand drops, production drops. Businesses either lay off workers or go out of business. Don't forget, the WPA laborers were paying extraordinarily high taxes too, and so were the business owners, who paid $700,000 in taxes for every $900,000 profit.
WPA was all of a tempting carrot, a tight leash, a whip, and far worse, Roosevelt's work program used the federal laborers. Two dollars per paycheck was taken from the laborers to fund Democrat campaigns. Roosevelt then tossed a few extra dollars their way, if the laborers campaigned for his reelection in 1936.
Something good though seemed to be peeking out of the workers program. By late 1935, unemployment from a previous high of 25 percent dropped below 15 percent, just in time for the 1936 presidential election.
Roosevelt magically created 300,000 WPA jobs, sure to gain sympathy for the New Deal, reduce unemployment, and gain votes for FDR. Soon after the election, the 300,000 WPA jobs vanished.
By 1939, unemployment had climbed back up to nearly 21 percent. At the time, the United States ranked 13th in the world in economic recovery.
Though unemployment dropped to near 2 percent in World War II, statistics reveal that both consumer consumption and the production of domestic goods remained low.
The United States didn't pull out of the depression until after World War II and after Roosevelt died, when President Truman became friendlier toward the private sector, and the American economy resumed doing its thing.
The poor stay poor and the rich gets richer -- what a grand idea. In a free-market economy in a free society people have the choice to become whatever they want. It's up to their ambition, absent Keynesian economics.
Yet utopian Keynesian economics only functions in some twisted manner in a tyranny. Even John Maynard Keynes knew that just a little too much government interference creates uncertainty, a rod in the spokes of a free-wheeling economy.
He indeed warned President Roosevelt of that outcome. The President didn't listen. Since when has any government limited itself to small doses of stimulus to spark a fledgling economy.
Government limiting itself is not in its nature. Eventually it wants control. Does that sound familiar? Economics is certainly complex - I know, I study it all the time - but like everything in life its principals are simple, for those who have a simple aptitude.
Great article. A++
#23: Starvation may have been the threat used to force people into factories and bring about the industrial revolution, but we clearly don't need to operate on those principles anymore.
Did you know that 50 percent of wealth is inherited, and 25 percent is won through 'lucky' speculation? And remember that most of that wealth stagnates.
Sure, there's the odd famous, hyper-rich philanthropist like Bill Gates (and I'm not belittling his example in any way). But in general, it's the poor who spend their welfare checks and keep the economy from stagnating. The rich sponge up wealth and keep it with unfair tax breaks.
The trickle-down theory has never proven true, you know.
Where I'm from, in Canada, the wealthiest 1 percent of the population controls 25 percent of the country's wealth. Yet the average middle class wage earner works 200 more hours a year, and makes less than a decade ago. And American income inequality is a good deal more extreme even than ours.
Are the lower classes just lazy? That's like saying muslims are just terrorists. Your viewpoint is so skewed and biased toward te stereotype that I wonder if you have any education at all, aside from your happy-happy Bible.
I don't believe that the ability to afford health care, education, nutritious food, housing, and respect should depend on what name you were born into or upon 'luck'. If we could overcome our own greed and recognize that it is possible for us all to share and still have enough, we could stop the re-shaping of society through income inequality and perhaps approach some level of trust for one another.
Work is social, and it's proven by studies that work means more to people than earning money alone. "Laziness" is not what we need to eliminate, it's greed and the quick-fix creation of unstable employment positions.
Regarding FDR´s spending on stimulus to get America out of the depression of the 1930s and 40s. Is it known if the infrastructure improvements were valued at a net gain or a net loss?
It would seem to me that if valued at a net gain, then this would prove that the basic concept of Keynse has worked.
What is the definition of wealth in Keynesean terms?
From what I have read of Keynes (The General Theory of Employment, Interest and Money), national wealth is defined (functionally) as a nation of consumers willing and able to consume -- but I could be wrong. Please help a poor public-educated observer understand what national wealth is by 21st century (post-classical) standards.
Hey - anon24225. What if there is no war to generate government demand and it is left up to the unwilling or timid consumer? Private sector spends money for economic gain. Government spends money for political gain. What if certain sectors of the country cannot benefit from government stimulus?
No. 23. *Exactly.* Thank you for reminding me.
Just look at the failure of Nixon, Carter, and FDR. FDR's stimulus failed, unemployment didn't change much for seven years. We can also look at the failure of the Bush Stimulus!
It doesn't work for one major reason: the money government spends comes from the very source it's trying to fix - the people... Redistribution of wealth doesn't create wealth, it only changes who has the money...
I know that this will bring a firestorm, but if you apply God's economics to our society, you will find that all of man's attempts to deal with social and economic issues, fails miserably. The intrinsic law of loving God and serving each other totally obliterates the ugly traits of a fallen humanity, i.e., hate, greed, lust. Wealth is not a problem, if it is come by honestly, and used to help others. I would rather see a wealthy person give freely to help those in need, rather than the government stealing it from the wealthy to redistribute to those who think that "a welfare state" owes them a comfortable life. It is amazing how quickly you can get a person to work, when their stomach is rubbing against their spine! Those that are incapable of working, need to be assisted; those that refuse to work, ought to suffer hunger pains.
The only problem with "Laissez-faire" is that you must have severe enough consequences for abusing the system, or the system will be abused. Integrity is lost in our society; if a person thinks they can cheat the system, and only pay a small price if they get caught, they will cheat the system! If there are no absolute standards for right and wrong, then who cares about getting caught?
We are a consumer-driven society because sex and violence sells. Planned obsolescence was introduced to force us to continually spend our resources on goods that don't last. Don't save up for a "rainy day", because the government will guarantee that you'll always have sunny days! Yeah, Right!
So let's have a rousing war and get out of this mess... the Government can ration everything and in a few years all will be better.
Your views are just a Keynesian joke ...
Keynesian economic theory is based on the rash assumption that wealth is a fixed quantity. wealth, however, can be created. let me use this anecdote. say there's 2 people. one of them creates something- let's say they're a farmer. they can raise livestock, and grow vegetables.
the other person is not a farmer, and cannot sustain himself without the farmer's help. the farmer requires something to trade for his food. the other person could build a house, or make clothing, etc. and each thing he creates has its own value. money is only symbolic of the value of something else- it holds no value itself, which explains the idea of inflation. if more money is added to the economy without more *value*, measured in goods and services, that money only serves to devalue existing money. taking money from those who have earned it and giving to those who have not (redistribution) causes inflation because no value exists where it's being relocated to. also, it provides less of an incentive to have a large sum of it- because those who do will get it taken from them without receiving anything in return. without a reason to have that position, they will cease to employ others under them, causing unemployment to skyrocket.
keynes suggested that if more demand than supply exists, there should be a tax to decrease demand.
on the other hand, supply side theory proposes a different course. reducing tax on the supplier, increasing potential supply (hence the name supply side).
this allows room for the creation of more wealth, as is natural in laissez faire capitalism. stagnation of wealth only matters if no more wealth is being created by producers- money does not have a circular flow unless the economy has stagnated.
economic regulation should only exist to prevent taking advantage of the government for the purpose of your own personal gain. the intervention of government in the economy is the only reason for any major economic disaster, including the great depression. "robber barons" only existed because they were helped by the government.
and i leave you with a quote from John Maynard Keynes that sums up his position- the polar opposite of mine.
"Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all." - John Maynard Keynes
I'm not so confident on the WWII comments, however in world war *one* (where a treaty of Versailles was signed the year after the armistice), the American lending to Germany was really quite like a global stimulus. It basically went (my understanding goes) that by the US giving money to Germany, Germany could afford to pay some nations she owed, who could then pay their own lenders. This created a cycle by which America did eventually end up getting all of its money back, not just from Germany but from other nations also. It really was a clever piece of economics.
Just so you have a few facts straight about WWII. The treaty of Versialles, was written to bankrupt Germany, so that American corporations could come in and purchase the country for nothing. Rockefeller, actually sold the fuel additive needed for the Luftwafer to bomb Britain. Henry Ford adored Hitler and GM sold him engines and technology. Also do not forget that Preston Bush, helped the Thyssen corporation make purchases that otherwise would have been impossible.
So before you start writing, do a little research. Just so you know I am 23 and never went to university but even I have found this info, and this is just a scratch of the surface.
It seems to me that our cash has been spent on goods from "other" countries (imports) without the resulting payment of wages to our labor pool. This reminds me of the old time barber who "bled" people in order to lower fever. We have "bled" our currency to China and to Saudi Arabia. Fix that Mr. Keynes!
If you're looking for "proof" that an economic theory like Keynes' can work, then you'll never find it. Economics cannot be truly tested in a scientific manner - you can never establish a control group - so "proof" is not really forthcoming. Even if the current usage of Keynes' ideas work, it's still not really proof. Economies can be influenced by too many things, sometimes from very obscure sources, and as is typical with economies - chaos abounds.
In today's economy, currency wealth of individual/business consumerism forms the foundation for world economic wealth. The degree of separation between the amounts of currency distributed to each individual is not accounted for in modern economic theory. Some countries have attempted to address the issue of individual distributed monetary inequality with varying results, but there still remains great inequalities in many of these countries. The root of this vexing economic problem lies in assumption that the holders of the pools of currency, which are controlled by major economic institutions e.g large corporations, governments, banks, other financial lending businesses, will operate egaltarily with a minimum of regulation. The assumption of egalitarianism for profit across the full spectrum of the public has never been part of the economic history of the world. But that doesn't mean that we shouldn't try. 21st Century humans are evolutionarily capable of it. Past attempts, such as Sweden, come close, but fails in the long run because taxes limit personal/business accumulation of currency. The current pseudoism that "the market should/will regulate itself" has proven that egalitarianism has been left out of economic action on the marco scale. A true turn to build in egalitarianism into economic policy should be the foundation of any new economic efforts world wide. Large degrees of currency separation between the populace lie at the root of most social problems inflicting our world today. We need a new model, neither Keynesian nor Austrian.
The "pragmatic" redistribution of wealth theory here is insulting and degrading to the poor. It's basically saying the poor are too stupid to save money, so spending it will boost the economy. (That's all fine and good if they were purchasing U.S. made goods). At some point the poor are going to realize how the government views them and why it's important for a segment of our population to remain poor.
No, it was not the spending of military goods during WWII that pulled us out of the Great Depression. Is was the sole fact that the good 'ol USA was the only industrialized nation left untouched by the war in an infrastructure and manufacturing sense.
The world came to us for the recovery because we were the only ones capable at the time to rebuild the world.
The world bought our goods; we enjoyed a great economic boom, built the interstate, the middle class expanded, the Great Society polices created, etc.
Now, the world has caught up in the last twenty years and we must shrink our spending to a degree or be crushed under the budgets and entitlements created in the past. Unfortunately, Obama will not bring that change.
What was WWII? It was a government spending program of a magnitude never seen before. It broke the back of the depression. The country devoted itself to defense and military (paid by the government).
After the war the industries created by the government defense spending converted to consumer goods (cars, appliances, etc.) to meet the pent up demand of the American people giving birth to a golden economic age that crashed and burned with Reaganomics and GWB. Maybe the bailout is not big enough.
Boom/bust was also a feature of the Golden age of Keynes, only less severe than it's malevolent neo-liberal counterpart.
neither explain why crises occur....
I agree that the article is a good and simple brief introductory definition of Keynesian economics.
I do not agree with the oft-repeated nonsense that Roosevelt's programs would not have allowed our citizens to dig themselves out of the Great Depression (--as opposed to what has not been done to date regarding the present Depression, and the mini-depression created by Reagan--) without the advent of WWII. It is clear that FDR's Government WPA, CCC, etc., ignited a rebirth of art, science, theater (also cinema), knowledge of and appreciation of American culture and history--and allowed opportunities (i.e., Hope with Foundation)for many previously excluded economic and ethnic groups in our nation. We would have lost WWII without the abilities developed by these "interventionist" Programs.
A nation requires a government which serves its citizens to survive--and to thrive. Otherwise, we might as well have anarchy--a form of which is the "cycles" cited by academic economists and privileged politicians. It was the greed of the Robber-Barons, Bankers, and the very closed tier of the most wealthy and socially and politically connected individuals who caused the Great Depression in this country and the Depression--and, yes, it is a Depression-which is currently tormenting the working class. I also must point out that Obama and all the rest speak of a middle class that does not exist. Someone who has an income--not including assets other than current, liquid income of $250K plus has no relationship to the median income of around $50K for a family of 4. Nor does it speak to those who make much less than that, i.e., The People.
Capitalism without strict regulation will destroy any nation--including ours--and the real culprit, fundamentally, is that old enemy of any democratic country--COLONIALISM--what we mistakenly call Immigration, Out-sourcing, etc. Economists of any ilk--Keynesian or otherwise--have not faced this fact. If Obama doesn't, our country will not survive with any ghost of our fundamental values and promise. We cut police, fire and we spend tens of millions on Colonialists. Colonialism is the twin of Genocide and no friend to any democratic, regulated capitalistic, just Nation--ours.
Keynesian economics is a joke. The notion that saving money for tomorrow is a bad thing is illogical. If you want to learn about real economics, study Austrian economics.
Keynesian economics have never worked. Never has this theory been able to rescue any foundering economy. Yet its detractors will argue that it "hasn't been tried", or "the Government didn't spend enough". So don't expect its proponents to come up with any success stories.
An utter failure everywhere. And Keynesian economics didn't get us out of the Great Depression. (economics 101) Hitler and Hirohito did. FDR made our economy worse.
24112: Obviously, the people that hoarded the money were the people who had some money to hoard. Elaborate on the idea that about how this theory makes it easier for banks. I fail to see how a bank is a required component of a Keynes transaction.
The Depression caused what is now known as a "liquidity trap", where the price of money is 0% interest and still no demand. GOVERNMENT came in and spent on work projects and then the war....that in turned created demand for goods and services which got up out of the depression: conclusion: Keynesian Economics works! and they can explain the real world conditions of the economy better then classical economics.
Who hoarded money? The banks, it's called interest and credit. Keynesian economics makes the banks hoard money even easier, and hides inflation till the money finally hits the poor.
There is no proof it ever works.
Poor stays poor, rich gets richer, grand idea.
I really like this article on Keynesian economics, it is short and to the point. Exactly what I needed to get a general understanding of the main ideas of this theory. thanx!
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