This course explores the birth, death, and resurrection of The General Theory of Employment, Interest and Money from the Great Depression (1929-1939) to the Great Recession (2008-?). A major goal is to lay out a coherent argument that, for all its theoretical innovation, The General Theory did not deliver: the argument why a market system, even an idealized system with all of the warts removed, may fail to provide jobs for willing workers. In the process we will examine the orthodoxy that Keynes attacked and that resurfaced in the 1960s and 70s; the key concepts underlying the models implicit in The General Theory; and the attempts of the Keynesian mainstream to make peace with both Keynes and orthodoxy. We will also explore the applicability of The General Theory to the long run. A final section will view the present economic difficulties through a Keynesian lens.
Keynesian economics or also called as Keynesianism, are a number of different theories which mainly emphasis on how the short run and especially during the recessions as well as inflation times, economic output is very strongly influenced by the aggregate demand which is the total spending in an economy. From the Keynesian point of view, the aggregate demand does not equal the productive capacity induced in an economy. But, instead, it is majorly influenced by a number hosts of factors and eventually behaves erratically due to this which in result affects the production, inflation and employment. In other words, it is a basic economic theory which stats with the total spending in the economy and the effects of these spending on output and inflation. Keynes prominently advocated the increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the Great Depression. Due to its popularity, this theory came to known as the “Keynesian Economics” and it was subsequently used for the reference to the concept that optimal economic performance could be highly achieved, and the economic slumps can be prevented on a longer run, by mainly influencing the aggregate demand. It was done through the economic intervention and activist stabilization policies by the government. Keynesian economics is known to be a “demand-side” theory that focuses on changes in the economy over the short run.
The major theories which form the basis of this Keynesian economics were presented by John Maynard Keynes, who was a British economics. It was presented during the Great Depression in 1936. The main approach with which Keynes contrasted was with the aggregate supply focused classical economics. It preceded his book. The major interpretations of Maynard Keynes that followed are mainly contentious. Many schools of economic still thought to claim his legacy. The economists who support this Keynesian economics, mainly argues that the aggregate demand is the unstable and volatile in an economy. A market economy will sometimes experience an inefficient outcome which is relatable to the macroeconomics. It is experienced in the form of inflation when the demand is high and in economic recessions when the demand is very low. Most of these can be mitigated by the economic policy responses. Monetary policy actions by the central bank and fiscal policy actions by the government, can help in maintaining the output in the cycle of business. Keynesian economists generally support a managed and stabilized market economy, which is predominantly private sector, but with an active role for government intervention during depressions and recessions.
During the Great Depression, World War II and Post- war economic expansion, Keynesian economics served as an economic perimeter model in the developing nations. Though during the oil shock, it lost some of its influence, but in 2007-08, when financial crisis was taking over the world, it saw major rise in Keynesian thought and served as the new Keynesian economics.
Deficit spending is a phenomenon, when the government’s expenditure exceeds its revenues over a counted fiscal period. It usually creates or enlarges the government’s debt balance. In the earlier times, government deficits were financed through the auction or sale of the public securities in which government bonds were in particular. Many of the economists, especially in the Keynesian tradition, believed the government deficits can be used a prominent tool of simulative fiscal policies and changes. It is majorly an accounting phenomenon. Deficit spending is only possible to engage in the deficit spending when all of the revenues fall short of the major expenditures. However, nearly all of the academic and political debate surrounding deficit spending focuses on economic theory, not accounting. According to a prominent demand-supported side economic theory, a government can begin deficit spending after the economy falls into recession. The famed British economist John Maynard Keynes is often credited with the concept of deficit spending as fiscal policy, though most of his ideas were re-interpretations or modifications of older mercantilist arguments.
Keynesian Put is basically an expectation, that the markets and the economy will be highly supported by the fiscal policy stimulus methods. The best fiscal policy stimulus mainly includes reduction in taxes and high increase in the government spending. These are mainly aimed and prepared at giving a boost to the real economy which, all the financial markets should also expect the indirect benefits of strengthening economic growth. The term, ‘Keynesian Put’ was first coined by some analysts at the Bank of America in 2016. It is a reference to the economic theory by John Maynard Keynes as well as a play on the term Greenspan Put, which was used in 1998 for describing the major accommodative monetary policies of the Federal Reserve Chairman, Alan Greenspan.
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