Day 4: Keynesian Beauty Contest

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 this clear-cut formula of success. How should a rational player behave in a world where not every player is perfectly rational? Perceptions of value can lead to irrational fluctuations in rational systems. Though this process creates uncertainty, we are all still entrapped in this intricate Beauty Contest and must forever keep guessing (and guessing our guesses too!)

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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 stat...

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.

Day 15: Goodbye, 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-...

15 Days of Keynes.

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