Day 6: Keynes and Behavioral Economics

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 confidence in the economy so as to raise their expectations.

Thus, Keynesian views are also rooted in Behavioral Economics and the study of human decision-making, which is not a result of rational calculation based on information available, but on a culmination of emotions and perceptions (which are often false).

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Day 3: In the Long Run, We are All Dead!

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...

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.

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