Day 14: Critiquing Keynes

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 stating that governments may increase their spending during a recession in the short run. However, after it ends, the high spending still remains, leading to higher taxes.

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Day 10: The Interventionist

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...

Day 9: The Bible of Macroeconomics— The General Theory

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 ...

Day 13: Multiplier Effect

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.

15 Days of Keynes.

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