15 Days of Keynes.

"The difficulty lies not so much in developing new ideas as in escaping from old ones." As we come to the end of our 15-day journey exploring Keynesian ideologies, I cannot help but to reflect on how much influence Keynes has exerted in not only the global economy, but in our daily lives as well. His revolutionary mind and endless vigor to challenge existing ideas paved way for new opinions and diverse outlooks in the field of Economics. The discipline was extremely rigid, unaccepting, and wary of alien inputs that varied from existing theories. However, Keynes barged in with his sunny optimism and completely revolutionized economic thinking, thus injecting flexibility in Economics and creating space for differing opinions.  Though Keynes has attracted cartloads of scrutiny and criticism, it cannot be denied that his contributions to the field of Economics are invaluable and have definitively shaped the course of modern Economics and how the global economy functions. Present-

Keynesian ideologies have been widely debated upon, which has led to a bifurcation in academia. Some stand by his ideas and build upon them while others strongly refute his notions and have criticized his work extensively.  A critique I find very valid is that of his undue promotion of deficit spending. Keynesian Economics advocates for increasing budget deficits during recession. He failed to acknowledge the crowding out effect that would potentially ensue. For a government to borrow more, interest rates on bonds would rise which would discourage and stifle private sector investments. Yet another critique originated after observing the real world effects of Keynes's suggested expansionary fiscal policies on global economies. Fiscal expansion often tends to show up at a later stage when the economy is on its path to recovery. Thus, instead of its intended effect, it ends up causing inflation.  Milton Friedman, Keynes's biggest critic, also provided a very logical argument stati

I am hungry. I buy two huge margherita pizzas. The cost of the pizzas to me is income to the seller.  What the seller spends out of this income would be income to someone else.  This goes on and on and on. This becomes an economy-wide chain reaction, or the "multiplier effect" as Keynes called it. Thus, consumption rather than thrift promotes economic growth, and the  government should stimulate demand. Each unit of money it spends increases economic activity, not by one unit, but by one unit times a multiplier. The expenditure more than pays for itself! This seems like the panacea to all economic evils: the government should just spend and spend and this  initial injection will further create waves of spending and thus, reboot the economy. However, this solution of spending more and not worrying about the incoming due bills sounds a bit too idealistic and "too good to be true" to me. 

  Keynes blames the stickiness of wages for distortions in the job market, which affect employment rates. Looking at the trends exhibited by the economy during the Great Recession of 2008, nominal wages couldn't decrease owing to the sticky nature of wages. Companies responded by increasing lay-offs to cut costs without reducing the wages of the remaining employees.  Therefore, the popular sticky wage theory postulates that employee pay tends to respond slowly to changes and exhibits resistance to decline even under deteriorating economic conditions. This can be attributed to the fact that workers will fight against a reduction in pay, so a firm will seek to reduce costs elsewhere. In a case of rising unemployment, wages of those workers who remain employed tend to stay the same or grow at a slower rate instead of decreasing with a decline in labour demand. Thus, wages are "sticky-down" as they can move up easily but experience difficulty moving down. Real wages are inste

As emphasized priorly, Keynesians staunchly believe in activist policies to reduce the amplitude of the business cycle. According to Keynes, the business cycle is the root of all economic evils and is the most important of all economic problems. To tackle this, Keynes advocated for countercyclical fiscal policies that act against the direction of the business cycle. For example, deficit spending on labor-intensive infrastructure projects to stimulate employment and stabilize wages during periods of economic downturns. In a situation of abundant demand-side growth, Keynesians would lobby for raising taxes to cool the economy and prevent inflation. They also rely on monetary policies in certain situations (minus periods of liquidity trap) to stimulate the economy, like reducing interest rates to encourage investments.

  Out of all the contributions Keynes has made in the field of Economics, his interventionist approach is probably the one I most agree with. According to Keynes, economies don't stabilize themselves very quickly and require active state intervention to boost short-term demand. Wages and employment too, are slow in their response to the needs of the market, requiring government intervention to keep them on track.  I firmly believe that interventionist policies are a massive improvement from the classical inclination to a laissez-faire stance. Such a "leave-it-alone" mentality can be downright harmful for the economy, as absolute autonomy can lead to chaos and mayhem, with private interests taking precedence over overall societal welfare. It also invariably widens the chasms of income inequality. Without government intervention, monopoly power would freely reign and such intervention can regulate markets to function more effectively, as well as cater to public and economic

Reading Keynes's  The General Theory of Employment, Interest, and Money  is a life-changing experience even in the 21st century. This means it was practically explosive during his times. A time dominated by the reigning classicists and their accepted axioms and ideologies, Keynes challenged all these existing theories and his book was a radical reconsideration of some of these founding principles of Economics, provoking a widespread revolution in economic thought. Keynes's affinity and prowess for problem-solving shines throughout this masterpiece of a book. The heart of The General Theory lies in its analysis of poverty and unemployment, which Keynes saw as having permanent and tragic political and economic consequences. According to Keynes, unemployment is not caused by rigidity of wages or prices, but by lack of incentives to increase production, due to lack of effective demand in the short run and lack of knowledge of the future in the long run. Keynes also addressed the &q

For some, Keynes was a messiah who saved the world from the evil clutches of Great Depression, while for others, he is responsible for the mess that the current global economy is in. No matter what you stand by, it is a universal fact that Keynes was a cheery optimist. He was known for his sunny outlook and his ability to see beyond the grim present to better days, even amidst the darkest periods of economic history. He was dedicated to breaking the vicious cycle of economic pessimism that was plaguing his times, constantly reassuring the public that "this too shall pass." He very boldly made claims that when his great-grand children were adults, the world would've solved all its economic problems and the material requisites for a good life would be available to all (in the West). Keynes's positive mindset withstood the storms of the Great Depression and the Second World War. When the Depression failed to respond to monetary policies, he strived to come up with a new

Keynes was a bold man. Bold enough to challenge prevailing economic theories and views of his time. He refused to accept the views of the neoclassical orthodoxy. He deemed their belief that an economy, left to its own devices, would spontaneously achieve full employment as hugely flawed and erroneous. He was perplexed as to why such notable scholars would come up with the conclusion that everyone who wanted a job could have one as long as workers were flexible in their wage demands.  I believe that Keynes was completely in the right as the concept of full employment would mean actively neglecting involuntary unemployment, which was the reality of thousands globally.  This, though seemingly a very obvious observation, was not so obvious during his time. There exist millions of workers who are prepared to work at a given wage rate and even below it, but fail to find work, often due to changes in the business cycle. The capitalist structure of society is characterized by such involuntary

Keynes was of the opinion that demand is liable to stay low and create issues such as prolonged unemployment in the economy. He attributed this primarily to people's perceptions and expectations, which is precisely where his views on optimism came in.  He postulated that consumers will buy less and entrepreneurs will invest less if they expect that the economy would be depressed in the foreseeable future. Keynes deemed these expectations as not fully rational, but based on human psychology and how optimistic they were feeling. He coined the term "animal spirits" to describe how people arrive at financial decisions, "a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities."  I believe that this view on the human psyche and decision-making explains why government spending is vital, not only to sustain consumption, but also to nudge the public and build their c

If Keynes were to take a peek at the economic scenario of the recent past, what would he see? Most households reduced spending in a bid to repay mortgages which were larger than the values of  their houses. Though businesses acquired large amounts, they were hesitant to invest owing to decline in the value of assets. Student debt increased, while consumption decreased. Most importantly, governments reduced their spending in light of austerity policies that aimed to reduce public debt. As a result of an overall decrease in spending, national income decreased and so did jobs, which adversely affected global incomes and employment as well. Central banks increased money supply to stimulate spending, but reluctance to spend was at an all-time high.   We were experiencing a Keynesian liquidity trap.    This situation calls for a fiscal policy rather than a monetary policy. The government's bid to increase money supply rendered   ineffective as the policymaker's attempt to influ

Today, as I indulged in a friendly game of poker (with no real money, of course!) with my roommates, I was hyper-aware of the level of wits that this mere card game truly entailed. I couldn't simply make a naïve move, but I had to think about what my opponents would play in order to calculate my move. Deeper into the game, I began thinking about what my opponents thought about what I would do, and I based my move on that. This opened my eyes to how Keynes's popular  Beauty Contest  theory was so diverse in its applicability.  Keynes had come up with this perfect analogy to represent the inner-working of the stock market and to give an explanation for its volatility. "Successful investing is anticipating the anticipations of others." Thus, in the chess game of speculative markets, you win not by picking the soundest investment, but by picking those that are bid up higher by others in the same game. However, bounded rationality of individuals can be a major deterrent to

  Today, I attended quite an interesting Public Economics lecture on government grants. My professor was talking about how the US government had approved $2.2 trillion worth of loans and grants in order to soften the blow of the COVID-19 pandemic on the most affected families and businesses. He then asked a fundamental question that left us pondering: "Do these hefty government grants and packages financed by taxpayers' money which benefits only a select few make good economic sense?" This brings us back to the 20th century, specifically the 1930's, and how Keynes's influential ideas led to aggressive government policies, rescuing the global economy from the Great Depression. Keynes was a staunch proponent of short-term policy interventions and famously believed that, "In the long run, we are all dead." Yes, things might get better in the future, but why wait for when no one will be alive to reap the fruits of the future? In times of economic crisis, the

Keynes is regarded globally as the founding father of Macroeconomics.  Keynesian economics is a macroeconomic theory of total spending in the economy and its effects on output, employment, and inflation. This theory was the first to make the move from studying individual markets to studying broad national economic aggregate variables and constructs.  Macroeconomics as a distinct discipline only came to fruition due to Keynes's seminal work,  The General Theory of Employment, Interest, and Money. Through this macroeconomic masterpiece, Keynes introduced the notion of aggregate demand, a sum of consumption, investment, and government spending. He put forth the idea that it is this aggregate demand that drives supply in the economy, and not vice versa like the classicists believed. Therefore, demand is the driving force of the economy, not supply.  Keynesian economics thus argues that healthy economies spend or invest more than they save. To create jobs and boost consumer purchasing p

    If I were to proclaim that Keynes was undoubtedly my favorite economist, I would be deemed as quite unoriginal and simply following the crowd. Why would I choose someone who is known widely by every single person on the planet (and their parents and their grand-parents and probably their children too, you get the point)? Well, it's because I thoroughly believe that Keynes is worth the hype. He is worth every piece of recognition he got and his brilliancy deserves to be cemented and immortalized in the decades to come as well.  Keynes's practicality is his forte and is the reason why I hold him in such high regard. He saw a real crisis in the form of the Great Depression, and instead of resorting to pessimism and age-old, ineffective economic theories like many of his counterparts did, he offered revolutionary ideas that broke out of the confines of classical orthodoxy. His intellectual flexibility was miles ahead of his time. In a bid to reflect upon my favorite economist a