The question on linkedin forum was:While solving the current Macroeconomic problems, Keynesian school of thought has gained relevance in recent times. Does this spell an end to the New Classical school of thought which essentially relies on inherent forces in Market to play themselves out?
My answer:
Keynesian school of though has gained relevance, especially with the plans to “rescue” the world economy by U.S. president and the others G20 leaders.
Keynesian policies (increasing the public sector in the market by government investment and monetary growth) were successful in the past – F.D. Roosevelt policies during the Great Depression (1930’s).
But, those policies have not been successful in the crisis of the 1973-75.
Therefore, some economists believe (including me) that F.D. Roosevelt policies were appropriate in the 30’s, but those policies alone aren’t enough to solve the 2008 economic crisis, because:
- The causes of the crisis of the 30’s are not the same of 2008 crisis.
- The economic context is different. When F.D. Roosevelt invested in new highways or new railway tracks in the 30’s, that investment boosted the U.S. economy, because almost all jobs generated by those investments were absorbed by U.S. residents, and almost all industrial production and technological development was absorbed by U.S. companies with factories in the U.S. soil. Similar policies nowadays will result that generated jobs will be partially absorbed by labor from emigration, and a big stake of the industrial production will be imported from other countries, therefore, the current unemployment rate will not decrease as much as expected, and the national industrial production will not increase as much as predicted. So, U.S. investment in transports infrastructures like highways and railway tracks will boost U.S. economy, but not as much as in the 30’s (not even close), and this happens in the same way with other public investments in the other sectors, like energy for example.
I think that some Government intervention (inspired in Keynesian policies) is necessary to guarantee the market stabilization and restoring confidence, but, the guidelines to get back on sustained economic growth are:
- Regulate the markets to avoid speculation bubbles that resulted in the 2008 crisis. - Policies that attract more private investment in the economy.
- Policies to attract foreign investment in national soil.
- Policies that enable national companies to export more.
Market regulation can be defined by the G20, but the other policies mentioned will vary and will depend on each country economic characteristics.
My answer:
Keynesian school of though has gained relevance, especially with the plans to “rescue” the world economy by U.S. president and the others G20 leaders.
Keynesian policies (increasing the public sector in the market by government investment and monetary growth) were successful in the past – F.D. Roosevelt policies during the Great Depression (1930’s).
But, those policies have not been successful in the crisis of the 1973-75.
Therefore, some economists believe (including me) that F.D. Roosevelt policies were appropriate in the 30’s, but those policies alone aren’t enough to solve the 2008 economic crisis, because:
- The causes of the crisis of the 30’s are not the same of 2008 crisis.
- The economic context is different. When F.D. Roosevelt invested in new highways or new railway tracks in the 30’s, that investment boosted the U.S. economy, because almost all jobs generated by those investments were absorbed by U.S. residents, and almost all industrial production and technological development was absorbed by U.S. companies with factories in the U.S. soil. Similar policies nowadays will result that generated jobs will be partially absorbed by labor from emigration, and a big stake of the industrial production will be imported from other countries, therefore, the current unemployment rate will not decrease as much as expected, and the national industrial production will not increase as much as predicted. So, U.S. investment in transports infrastructures like highways and railway tracks will boost U.S. economy, but not as much as in the 30’s (not even close), and this happens in the same way with other public investments in the other sectors, like energy for example.
I think that some Government intervention (inspired in Keynesian policies) is necessary to guarantee the market stabilization and restoring confidence, but, the guidelines to get back on sustained economic growth are:
- Regulate the markets to avoid speculation bubbles that resulted in the 2008 crisis. - Policies that attract more private investment in the economy.
- Policies to attract foreign investment in national soil.
- Policies that enable national companies to export more.
Market regulation can be defined by the G20, but the other policies mentioned will vary and will depend on each country economic characteristics.
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