Keynesian economics

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Keynesian economics

(ECONOMICS) an account of the working of macroeconomic systems first propounded by John Maynard KEYNES, in which it is assumed that the economy is not self-managing and that governments must act to avoid prolonged recessions and secure FULL EMPLOYMENT. Directly at odds with much that had been previously assumed (see NEOCLASSICAL ECONOMICS), Keynes proposed government management of the economy – through monetary as well as fiscal policies – in which government expenditure would be increased at times of recession and reduced at times of FULL EMPLOYMENT and INFLATION, thus controlling aggregate demand within the economy. The adoption of Keynesian policies by governments seemed to be successful until the 1960s, when inflation and lack of economic growth began to emerge as a problem. Since then, while Keynesian economics still has many supporters, other macroeconomic theories, notably MONETARISM, have been in the ascendant.
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A purported professional consensus has encouraged left-wing Keynesian economists to preach, with much moral righteousness, against the socalled "austerity programmes" introduced by European governments in the past decade.
For instance, an economist who has been trained in a Keynesian-oriented department would tend to interpret a current economic event as per the Keynesian frame of thought.
Krugman comes close to acknowledging this: New Keynesians, he writes, "start with rational behavior and market equilibrium as a baseline, and try to get economic dysfunction by tweaking that baseline at the edges." Such tweaks enable New Keynesian models to generate temporary real effects from nominal shocks, and thus justify quite radical intervention in times of emergency.
The Keynesian politics that emerges is one based on an awareness, common to Keynes and Marx (and Hegel), that the economies of liberal capitalism could never be self-regulating.
But the very popularity of the phrase "Keynesian Revolution" reflects the special role Keynes played in recognizing the full implications of this transition from moral to materialistic economics, and reorganizing economics comprehensively in light of those implications.
Here is the context of that quote: "This slide from Keynesian theory to particular policies was well illustrated in his seventh edition (1967), when Samuelson cited a statement by Milton Friedman, "We are all Keynesians now." However, at the end of chapter 11, Samuelson (7:210) then referenced the full quotation from a 1966 interview of Friedman in Time magazine: "As best I can recall it, the context was: 'In one sense, we are all Keynesians now; in another nobody is any longer a Keynesian.'" Friedman (1968, p.
Keynesian economics had failed to overcome or even prevent capitalist business cycles in the US.
Besides the outsized role Phillips' research played in the creation of a Keynesian economic model that survived John Maynard Keynes' death, the man's biography is a whale of a story, which Harford succinctly captures.
One consequence of the so-called microfoundations project was that the field of macroeconomics itself underwent a radical transformation in which models of Keynesian provenance were pushed off the main stage in favour of dynamic stochastic general equilibrium models occupied by representative agents with rational expectations.
The Keynesians argue for increased government spending.
It is not surprising if there is a hot debate about austerity policies in many European countries because most policymakers are Keynesians, and this tradeoff is quite embarrassing for them.
The Keynesian explanation is that we're still recovering from the financial panic, though it's worth recalling that in January 2010 the Fed predicted that growth in 2012 would be 3.5% to 4.5%, not 2.2%.