Day 2: The King of Macroeconomics

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 power during a recession, governments must increase spending even if it means going into debt.

Although Keynes is my favorite economist, I beg to differ with his nonchalance with a budget deficit. A nation riddled in debt and unable to fulfil its financial obligations harms growth and investment in the future. Though I believe spending is essential, saving, too, is necessary for the health of an economy. Take the word of a college student!

Comments

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 11: Tackling the Business Cycle

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.

15 Days of Keynes.

Search This Blog