The Keynesian Ideas on Economics and Unemployment

Learning the ins and outs of economics and how it affects the society and its people is a key factor in understanding why recessions, depressions and other discouraging events occur once in a while within the country. This is best explained through the philosophies and observations of the great economist, John Maynard Keynes, who gave a high level of enlightenment during The Great Depression, in which the United States and other countries suffered a very high double-digit unemployment rate.

In the Great Depression of the 1930’s the unemployment rate reached as high as 33% in the United States and remained higher than 20% for almost a decade. Keynes, the most influential economist of the 20th century, has first gained reputation with his book The Economic Consequence of the Peace in 1919 where he has forecasted that Europe would suffer economically due to harsh economic conditions and reparations imposed on Germany after World War I. However, his published book in 1936 entitled The General Theory of Employment, Interest and Money brought light to the many questions resulted by the 1930’s Great Depression. This period was manifested by millions of people not finding jobs. His analysis gave him widespread reputation, which dubbed him as the most influential economist of the 20th century because many of his analysis was embraced and accepted by many economists in England and the United States.

He advocated some measures to help address problems of a country’s economy and some of them are as follows:

1. FISCAL POLICY. Keynes advocated that during times of reducing aggregate expenditures, a dynamic government will increase government spending and reduce taxes to improve household expenditures, as well as motivate more businesses to increase investments. When aggregate expenditures are high, the opposite thing should be executed.

2. MONETARY POLICY. This refers to controlling the money supply to change the interest rate and consequently control investments. During recession, money supply from the government should be increased to lower interests. During inflation, money is reserved to increase interest rates.

Comments

  1. Supply Sider says:

    The fallacies of Keynesian economics were exposed decades ago by Friedrich Hayek and Milton Friedman. Keynesian thinking was then fully discredited in the 1970s, when the Keynesians could offer no explanation and no cure for the double digit inflation, interest rates, and unemployment, and the persistent stagnation, that resulted from their policies. President Reagan formally dumped Keynesianism in favor of free-market and supply-side policies that produced a 25-year global economic boom.

    Yet, President Obama showed up in early 2009 with the dismissive certitude that none of this history ever happened, and national economic policy was decidedly back in the 1930s.