October 27, 2008

Keynes and the credit crunch

For those who like economy an amazing article I found about the credit crunch, more specifically about how to deal with it using Keynes ideas. Keynes was a British economist that became the most influential economist of the 20th century (some might say that Friedman was more important, but I prefer by far Keynes and for the reasons specified on the article the reason for that is getting more obvious now).

So if you like economy and finance, and would like to learn a bit more about Keynes, Keynesianism and hos his ideas are probably going to help taking us out of this economy problem, see the link bellow. Very simple and well written article.

http://www.telegraph.co.uk/finance/comment/rogerbootle/3264845/We-now-face-Keynesian-conditions-and-need-truly-Keynesian-solutions.html

F.


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  1. Roberto Pinho

    Hello,

    One question: in adopting these measures, what is good spending ? is there such a thing ? Is there any difference in the government borrowing to build a bridge or to fund cultural events ?

    27 Oct 2008, 20:38

  2. My dear Dr Robert “Watson” Pinho. Such a honour to have a noble Brazilian visiting and writing on my humble blog. Well, I`m pretty sure that you know that there are no specific answers for your questions. But vaguely speaking one could say that the the ideal would be to fully restore the confidence on the economy with as little money as possible. Theoretically the idea behind spending the money is that is cheaper to spend the money now and not losing the taxes and the economic growth (not speaking of the most important part of it, the real economy with unimportant things such as jobs….). But since governments are slow in decision and serve a very blurred thing called public interest it is on the society`s best interest to have the government spending as little as possible on anything (assuming, quite clearly, that as a Keynesian I`m also as liberal. No contradiction in that for those who read Keynes. Forget the Brazilian press).

    Bridges or cultural events. Well, I don`t think you are talking about the intrinsic value of them, but how would they fit on Keynes ideas as categories of expenses. Being very strict, keeping it very close to the theory would make more sense spending on cultural events. Because cultural events tipically would have no effect on the offer (and most certainly no effect on long term offer). Since we are talking about an already unbalanced economy, where offer is bigger them demand, a cultural event would make more sense (and that`s pretty much what was done by Roosevelt using Keynes ideas on the New Deal, financing things that did not create more offer). However I`m not sure if a bridge is a good example of something that would create offer. Perhaps in some epecific situation it would, but not like a factory, for example. I can even remember that Japan spent quite a lot of money building not-so-needed bridges in order to create demand in a Keynesian way. So bridges are not a good example, but since they`re closer to the production and they last on the long run I`d stick to the cultural event as closer to the required situation.

    28 Oct 2008, 00:28

  3. Roberto Pinho

    Yes, indeed, a bridge is a poor choice. By that I meant building infra-structure, althought not directly building capacity, as a consumer goods factory would.

    28 Oct 2008, 17:40

  4. fishing tackle

    I don’t think current philosphies work nor did keynes, we need new approaches to reoccuring problems.

    08 Jan 2009, 14:42

  5. Stuart

    I am not an economist but i must say that it is an interesting comparison, only the cultural event will not require future maintenance and will; invariably; not cost as much to create. But both could create demand in the economy through creating jobs for the jobless, who would then spend their earnings in the economy, thereby absorbing excess production and creating further production through the multiplier effect.

    This would work best if the money was spent on something that a large number of the jobless (often unskilled labour) could perform. In the literal sense; construction achieves this by providing work for a large number of semi-skilled and unskilled workers across a broad spectrum of industries (Steel, mining, concrete, builders, construction companies, recruitment companies, engineering consultancies etc…). Plus it drives the earnings and staffing requirements of the firms engaged in the project (directly and indirectly).

    Literally: Bridges engage a broader cross-section of the economy and stimulate demand for items supplied. Further they cost a significant amount more and take a lot longer to complete. Thereby creating far more demand.

    04 Feb 2009, 17:16

  6. That is it Stu…

    04 Feb 2009, 22:12


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