Tan Kin Lian's Blog: Keynesian Economics

Monday, November 30, 2009

Keynesian Economics

Source: Wikipedia

Keynesian economics is a macroeconomic theory based on the ideas of 20th-century British economist John Maynard Keynes. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle. The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936; the interpretations of Keynes are contentious, and several schools of thought claim his legacy.

Keynesian economics advocates a mixed economy—predominantly private sector, but with a large role of government and public sector—and served as the economic model during the latter part of the Great Depression, World War II, and the post-war Golden Age of Capitalism, 1945–1973, though it lost some influence following the stagflation of the 1970s. As a middle way between laissez-faire capitalism and socialism, it has been and continues to be attacked from both the right and the left.

The advent of the global financial crisis in 2007 has caused a resurgence in Keynesian thought. Keynesian economics has provided the theoretical underpinning for the plans of President Barack Obama, Prime Minister Gordon Brown and other global leaders to, allegedly, rescue the world economy.

COMMENT BY TAN KIN LIAN
Keynesian economics leads to deficit spending. It comprise of two strategies - low interest rate and government spending (to create demand). I prefer government spending (e.g. infrastructure and other useful projects) as it create jobs for people. I do not like low interest rate, as it leads to asset bubbles and benefit the asset owners.

9 comments:

Tan Kin Lian said...: Someone don't like my views on economics. I don't know why he bothers to read my blog. There are many other places that he can visit.

He keeps insulting me in any kinds of ways. When I see his comments, I just delete them without reading.; November 30, 2009 2:24 PM
Anonymous said...: There are many kind of eaters to one kind of rice grain. Obviously this person who insults TKL works for the financial industry who sees red over TKL's comments and opinions, as it affects his/her rice bowl.
Right strategy to delete his comments without even reading them, as he is trash after all.; November 30, 2009 4:36 PM
Anonymous said...: Governmet spending=Paracetomol (short term)

Near Zero Interest Rate=Bank Depositor subsidised bad loan

When bad loan go beyond 10% of bank libility, request for bailout from the government.

A STRATEGY TO BECOME RICH:

Coporate borrow cheap money and shut down business (e.g. Gold & stock), top management staff hide $$ somewhere.

Individual borrow cheap money and declare bangkruptcy (but hide $$ somewhere). I have seen how people get rich in this way in neighbourhood nations !; November 30, 2009 5:20 PM
Anonymous said...: The problem with economic theories is that the global economy has evolved so fast that many of the existing theories are outdated.

For example, the economic textbooks teach of fractional reserve banking and how that is used to create money.

That view is however hopelessly outdated. During the pre-crisis boom years, financial instituitions like AIG and Lehman found other ways of creating money. By developing instruments like credit default swaps, they were able to help other financial instituitions create more money than they should have been able to under financial market regulations.

When the financial markets collapsed, this money creation mechanism was permanently destroyed. The various governments came in and replaced the machanism via monetisation of debt.

In order words instead of having the financial instituitions illegally printing money, the governments went to legally print money.

The triumph of the intervention is that it averted a second Great Depression. The difficult part now is rolling back the policy. No one wants to be remembered by history as being the one to cause the global economy to collapse by prematurely tightening up.

Counter intuitive as it may be, the current policies are likely to cause the stock markets and property markets to continue to rise.; November 30, 2009 6:02 PM
Anonymous said...: Is there anything that we can CONCRETELY do?

So far, based on all the progress we have made, we can see that even China adopts capitalism idea after some years of strict socialism.; November 30, 2009 7:26 PM
Anonymous said...: There was solution - create industry.
e.g.
1950s - Rubber Plantation
1960s - Petrochemical
1970s - Electronic
1980s - Concode & Tourism
1990s - IT & Biotech
2000s - Structural Product, 7 star Hotel, KLCC, Taipei 101, Disneyland

There is solution - create industry
e.g. New Energy, Casino !

There is always a problem - longer life of urban resident. But, who is going to invest old people home or retiree village?!; November 30, 2009 10:56 PM
Anonymous said...: I doubt Keynesian economics would make a comeback, what we are seeing now is that govts worldwide are providing liquidity to avoid an economic collapse, so I don't think it is reverting back to Keynesian economics.

We are so deeply entrenched in the monetarist economics (which has provided growth since the 70s) and I don't see how we can dis-engage ourselves from monetarist policies. With the power Fed and the central banks of other countries wield over the world economy, it is unlikely they would want to surrender their powers.

However, with US$ losing its authority as a global currency because of the financial crisis, the global recovery would be slow and uneven as we are in a transitional phase of an emergence of multi-polar world. So the great growth attributed to the power of greenback via Fed's monetarist policies during the last 20+ years would be difficult to repeat, as we would not have a leader that would dictate the world economy.; December 01, 2009 11:47 AM
Ghim Moh Resident said...: Hi Mr Tan, the views above are good. Keep it up, there are people out there who likes to read your blog. Hope you have a nice trip.; December 06, 2009 10:04 PM
Ghim Moh Resident said...: I just want to say abit about Keynesian economics. Yes, you can spend but you must have the money to do it, not borrow.

Low interest rates discourage savings and i mentioned before reduce 1 function of money and that is a store of money.

Lastly, before we read about Keynesian economics, we should know more about this person. This person does not have any children in his life so why should he be concerned about the debts that the future generation will inherit?

Also does keynesian economics say you can spend by borrowing?; December 06, 2009 10:12 PM