What Is Keynesian Theory?

Keynesianism (also called "Keynesian economics") is an economic theory based on the ideas of Keynes's "General Theory of Employment, Interest, and Money." It advocates that the state adopt an expansionary economic policy to promote economic growth by increasing demand. That is to expand government spending, implement fiscal deficits, stimulate the economy, and maintain prosperity. Keynes 's economic theory states that macroeconomic trends restrict individual behavior. Political economy or economics since the late 18th century has been based on the idea of continuously developing production to increase economic output. Keynes believed that the decrease in total demand for commodities was the main cause of the recession. Starting from this, he pointed out that measures to maintain the balance of overall economic activity data can balance supply and demand on a macro scale. Therefore, Keynes's and other economic theories based on Keynes's theory are called macroeconomics, which is different from microeconomics which focuses on the study of individual behavior.

Keynesian

Keynesianism (also known as "Keynesian economics") is based on Keynes's book "

Keynes Life and Thought

The main conclusion of Keynesian economic theory is that there is no strong automatic mechanism in the economy for production and employment to develop towards full employment. This with

Keynes theory

Keynes believed that the level of production and employment was determined by the level of aggregate demand. Aggregate demand is the total demand for goods and services in the entire economic system. in

Keynesian tax

The difference between Keynesianism and neoclassical macroeconomics

A few words from Western scholars about the Great Crisis and Keynes:

The years of depression have caused depression, and dissatisfaction and suspicion have been widespread and profound. Interest in socialism and communism has resumed. Many people doubt that if capitalism would collapse so easily, would it make more sense to have an economic system that does not use profits as a watch for production, and an economic system that does not belong to the private sector but belongs to the shared economic system? Attention was focused on experiments carried out in other countries, notably Russia, where unemployment and depression did not exist.

Keynes is a man who believes that the government can intervene at the necessary moments and does not believe in total laissez-faire. He firmly believes that to make the economic cycle go up, the government must step in to maintain purchasing power by reducing unemployment. This means "deficit spending", but It will restore economic balance. In fact, this is what the "New Deal" is already doing, and Keynes explained it in his famous book "The General Theory of Employment, Interest, and Money" with a high degree of skill and theory.

Keynes solidified the society in a century where deadly danger threatened capitalism.

Keynesian contention

How to deal with hundreds of financial crises, large and small, in the history of human economics, has formed two very different camps: Keynesians who advocate active government intervention believe that it is necessary to expand credit through active fiscal policies to stimulate demand; Monetarians who should intervene believe that markets are always rational, and government intervention can only make the situation worse, and the depression should settle itself on its own. In Friedman's words, the best way to calm the market is to let him run into the wall, not to artificially cool down.

It is this very different idea that determines two different evaluations of the historical status of the "Roosevelt New Deal" in the 1930s: Keynesians believe that the expansionary policies and interventions adopted by the Roosevelt New Deal prevented the further spread of panic, The restoration of effective demand helped the United States come out of the depression; and the monetaryists believed that it was because of improper government intervention and assistance that disrupted the market's own adjustment cycle, but delayed the end of pain until the outbreak of World War II in 1939. The prosperity brought by the war has been shaken off the crisis, so it is the war, not the Roosevelt New Deal, that has brought the United States out of depression.

For China, the history and experience of coping with the economic crisis are obviously inferior to those of Europe and the United States. If the proactive fiscal policy launched in time in 1998, the financial crisis affecting Asia did not have a substantial impact on China s real economy. At the end of 2008, China launched a 4 trillion yuan investment order in response to the financial crisis. The 4 trillion bailout policy can be seen as the best use of Keynesian medicinal effects. The investment of 4 trillion yuan and the loan of about 9.6 trillion yuan in 2009 are a reflection of the "moderately loose" monetary policy adopted in conjunction with the stimulus plan, and it seems to have achieved a "major victory" against the financial crisis. But how to diagnose and prescribe effective prescriptions is still benevolent and wise, and the economic community is very divided on the 4 trillion stimulus plan and industrial revitalization plan. In particular, economists such as Zhang Weiying, Xu Xiaonian, and Zhou Qiren have argued on many occasions that Keynesian demand economics cannot provide the answer to our China question. China should not adopt an intervention policy but let the market adjust itself.

Keynesian criticism

In addition to the seemingly immediate effect of Keynesianism on the economy, the deeper reason may be that it provides the government with a theoretical basis for more and broader intervention in the economy. In our country, government functions are too broad, and government and enterprises are not distinguished. Some officials are used to pursuing political achievements as the goal. Some local governments have expanded domestic demand into simple total volume expansion, implemented uncontrolled monetary and fiscal expansion policies, blindly invested and repeated construction, and obtained large amounts of investment to achieve GDP growth. As a result of the bubble economy, local governments forced bank loans to further increase financial risks. So the biggest cure for local governments seems to be constant investment. Keynesians are concerned with short-term issues, not long-term ones. When a policy harms the country's long-term development, why should we insist on such a policy? The only reason is political considerations. Local government officials generally only consider short-term matters, not long-term ones. Keynesianism is particularly suitable for local government officials who only consider short-term interests.

In recent years, people have talked about the difficult progress of market economy reform and development in these years. What is the problem? It is because Keynes' theory occupies the mainstream position of Chinese economics. In the eyes of some economists, the double-digit GDP growth rate in the past 10 years seems to be a testament to the tried and tested Keynesian economic policy. However, those who really have in-depth observation and research on today's Chinese economy and society do not know the increasingly unbearable price behind this "effect". Moreover, in the context of a system quite different from that of Western countries, our adherence to Keynesian economic policies has brought about sequelae. The most prominent manifestation of this is to always regard speed growth as the primary goal, consumption as a means rather than a purpose, and consumption always It ca nt be stimulated, and there is also a squeeze and cannibalization of the space for private economic activities by a monopoly economy. It can be argued that Keynesianism is the theoretical source of the market economy reform's repeated dilemmas.

The economic crisis that erupted in many countries in the late 20th century shows that Keynes's theory has oversimplified and underestimated factors, forming theoretical loopholes:

Labor salaries have been reduced or stagnated, and the surplus of money has not created more jobs after being put into the pockets of capitalists, because more "investment" does not mean more "employment". Investment may be speculative financial games or real estate. The hype may also be funds that are placed on the low interest rate subject to fear of loss, and these will not generate job opportunities.

Even the capitalists investing in industry may not create too many jobs, because many emerging industries follow the elite policy and do not need a labor force. For example, a textile factory opened at US $ 100 million requires 5,000 employees; but the same software opened at US $ 100 million The company may only have one hundred employees. In the end, the total employment rate did not rise, and a large number of middle-class people fell into extreme poverty without work. At the same time, a small number of middle-class people rose to the rich, and the social wealth structure began to distort. [1]

Ignoring the lethality of structural unemployment, in an advanced society with a more precise division of labor, the effect of "interlacing like a mountain" will continue to maximize. Unlike the early industrial era, employees who were fired from shoe factories can easily move to match factories to work. Because the more primitive industries are less dependent on professional skills that require long-term training, fired software engineers in today's society cannot go to the financial industry to find a job, and vice versa, because the required education and expertise are no longer a company boss's weekly training course. Employees who can be cultivated and are eager to learn new skills must also return to school for several years. During this period, they have to bear the pressure of long-term no income and the pressure of tuition fees. This has formed an invisible barrier and increased the severity of structural unemployment.

Misunderstanding that "aggregate demand" can be increased without limit. Keynes did not propose what to do when aggregate demand stagnates one day. The theory assumes that people will always have demand for new projects and generate more new job opportunities in new industries. With the advancement of science and technology and mechanical automation, the number of workers required to meet the same needs is decreasing. For example, to produce 10,000 cars per month in 1950 may require 3,000 employees. By 2010, due to a large number of computerized mechanizations, only 200 people were required. Can operate a same capacity plant. Therefore, the speed of generating new demand for new industries must be accelerated to make up for the shortfall. However, a large number of low-paid or unemployed people will have a decline in aggregate demand or fail to perform because they have no money to consume, thus suppressing the emergence of new industry jobs and beginning to fall into a vicious circle or Stagnation cycle. ^[2]