Sunday, November 29, 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.