Saturday, September 26, 2009

The Age of Keynes

The picture:

Keynes is the economist who has been recently talked about most frequently among modern economists. He was a British economist and is thought to be the father of modern macroeconomics.
This blog is on economics, though its topics haven't been specific to it, and sometimes looks at macroeconomics. Macroeconomics is the application to general equilibrium theory, according to Roger Farmer, a famous macroeconomist of UCLA, but to Keynes himself, it seemed that it was one of disequilibrium theory. (It is normal for modern macroeconomics to be expressed as modern terms like general equilibrium theory, so at present I don't care the difference between modern macroeconomics and Keynes's macroeconomics. )
He always said that the economy as a whole in a country was always unstable and fluctuate, so the demand and supply of goods and service are far less likely to be equal. From the above perspective, he insisted on government spending policies consisting of tax cuts and government purchases, in order to strengthen the demand side of the economy.
He thought that the main problem of the capitalist economy was weakened demand side, not supply side of the economy; People sometimes feel nervous about their future because of something uncertain in their life(I think it is rather psychological factors than malfunctioning of economic mechanism.), and so they get to consume less and the firms invest less, produce less and pay less to the workers. Thus, the less they earn, the less they consume and the more the economy shrinks.
Instead of the people, the government should buy goods and services supplied in the economy and stabilize the economy and the employment. That's what Keynes suggested around 60 years ago. Better or worse, this principle has now been the main theme of the public policy in most developed countries. Looking back on Keynes' words, I think, is necessary to us when we have some economic difficulties, but we also need to criticize them at the same time.
I do not intend to call myself Keynesian(who is Keynesian, by the way?). However, definitely to say, when we think of macroeconomic problems, we never avoid his words.

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