Day 9: The Bible of Macroeconomics

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 "fallacy of composition" that exists in the way classicists ran things, referring to the mismatch between individual behavior and aggregate outcomes. This paved way for Keynes's being a staunch proponent of interventionism.

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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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