Keynesian Economics – a Continuing Process of Inflation, Governments Can Confiscate, Secretly and Unobserved, an Important Part of the Wealth of Their Citizens
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Keynesian Economics is an economic theorem based on the ideology of John Maynard Keynes in his publication ÐÐŽÐoGeneral Theory of Employment, Interest, and MoneyÐЎб (1936). Keynesianism holds that a country should adopt expansive economy policy and enhance economy growth through increasing the aggregate demand. It often stressed on the theory of total spending in the economy (aggregate demand) and of its effects on output and inflation .
According to Keynesian Economics, the aggregate demand is influenced by a host of private or public economic decisions, and that it sometimes behaves erratically. Changes in aggregate demand, whether anticipated or unanticipated, have their greatest short-run impact on real output and employment, but not on prices. The Keynesians withhold that the macro economic trend tends to restrict specific individual behaviors. The Political Economics and Economics developed since late 18th century hold to increase economy production through stimulating more production, but Keynesians feels that the decrease on the aggregate demand is the main cause for the economic recession. From such point onwards, Keynesian theory and other theories that was build on the KeynesianÐÐŽÐЇs basis have been classified as part of the macroeconomics, which differs greatly from the microeconomics that focuses more on individual behaviors.
Keynes deemed that aggregate demand decides the level of production and employment. Aggregate demand is the total desired purchases of all the nationÐÐŽÐЇs buyers of final output . In the microeconomic, price, wages and interest rate will perform self-adjustment and such adjustment would result in the moving of aggregate demand towards full-employment level. However, such self-adjustment mechanism did not cause any effect because the key issue is whether insufficient demand exists. According to classical theory, insufficient demand is just a symptom of economy recession but not the cause, because in a normal operating market insufficient demand will not occur.
Monetary policy is one of the means used by a country to intervene and fine-tune the countryÐÐŽÐЇs economy situations. Keynes believes that if the economy is operating below full-employment the government can use fiscal/monetary policy to boost aggregate demand and thereby take up the slow down of the economy. Such policy may include adjusting government spending, taxes, and the money supply every few months to keep the economy at full employment. Through the development, monetary policy has evolved from simply expanding public expenses and overcoming economy crisis to performing ÐÐŽÐofine-tuningÐЎб to the economy, both in depth and in breadth, in order to maintain long-term economy growth . Since the Keynesians believes in governmentÐÐŽÐЇs intervention in a countryÐÐŽÐЇs economy, from the aspect of monetary policy it somewhat reflected their wish to achieve full-employment by the aid of the changes in revenue and expenditure to adjust the level of aggregate demand. However, it is difficult to control money supply as the connection between aggregate demand and money supply is vulnerable and unpredictable. Instead of relying on the changes of money supply to affect the inflation, a better way would be directly controlling the interest rate.
The Keynesianism philosophy is reflected on demand management. That says to influence the production level by adjusting the aggregate demand level through fiscal policy. Some critics have it that the Keynesian demand management only cater for a short-term period, particularly not interested in the long-run, as a famous Keynesian statement ÐÐŽÐoin the long-run, we are all deadÐЎб. Some others claimed that such policies might worsen the fluctuations because it takes time for policies to be implemented. If the deflationary policies could not take place on time, there is a big probability for that particular country to suffer economy recession. The United State is one good example to explain such situation as it often took a long time for the Congress and the administration to first agree on most changes in spending and taxes before they can recognize any changes in the fiscal policy .
When government lost control on the fiscal policy, the consequences can be unimaginable. The government of Argentina first pegged Argentine peso to the U.S. dollar on a one-to-one basis, hoping to solve the countryÐÐŽÐЇs inflation rate as high as 5000 percent a year. Such policy successfully attracted a high influx of FDI into Argentina as investors are confident