Sunday, March 8, 2009

A primer on Keynesian economic philsophy

We've been hearing a lot lately from economists and pundits enamored of John Maynard Keynes and his philosophies on government intervention in times of crisis, especially when compared against laissez-faire fan Milton Friedman. What's always amused me is hearing from struggling, die-hard conservatives (at least in theory) who've declared bankruptcy (more than once) or lost homes in foreclosure and don't want any government intervention into the marketplace at all because it's just going to get in their way of gettin' rich! You know, someday. Like when the sun burns out.

My favorite magazine, The Week, has a great summary of Keynes, his economic theories, and why his ideas are back in vogue:

Born in 1883, Keynes was educated at Eton and Cambridge, and became a prolific writer on subjects ranging from philosophy to probability. He joined the British Treasury during World War I, representing it in negotiations in Versailles over the treaty that ended the war.

His experience in Versailles led him to write The Economic Consequences of the Peace, in which he condemned the onerous reparations imposed on Germany and sagely predicted the ruin that loomed ahead for Europe.

Such unconventional views left him out of political favor for much of the 1920s. But the market crash of 1929 increased demand for his theories—and counsel—on both sides of the Atlantic. In 1936, he published his magnum opus, The General Theory of Employment, Interest, and Money, which for decades exerted a profound influence on economic thinking and practice...

Disputing the classical free-market belief in an “invisible hand” that guides economies in a natural cycle, Keynes viewed recessions and depressions as symptoms of economic distress that must be treated...

In the current economic crisis, monetary policy has been pushed to its limit. The interest rate charged to lenders is near zero, but lending remains stalled and economic activity has plummeted along with employment. With no tools left in the monetarist kit, many economists favor a government boost to aggregate demand—just as Keynes would have advised. That’s the idea behind the $787 billion stimulus package...

Click here for entire article.

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