Can anyone explain Keynesian Economics's views of how to pro
06 Jun 2012, 9:16 am
Can anyone explain Keynesian Economics's views of how to promote economic growth in the private sector I know Keynesian Economics supports Government Spending but Government Spending on what ? Public Works Projects ? Infrastructure Spending ? I know this is not a Keynesian forum but Keynesian Economics should work better then Trickle Down Economics in my view. Doesn't Keynesian Economics support Consumer Spending to help the Economy ? I hear Keynesians say we need Government Spending to put money in the pockets of the people who then will spend the money this they say will help promote Consumer Spending which will help create Jobs how do Keynesians plan to pocket money in people's pockets is it by giving the people Jobs rebuiliding or building Infrastructure ?
John Maynard Keynes
The General Theory of Employment, Interest and Money
Book III
The Propensity to Consume
Chapter 10. The Marginal Propensity to Consume and the Multiplier
V
We have seen above that the greater the marginal propensity to consume, the greater the multiplier, and hence the greater the disturbance to employment corresponding to a given change in investment. This might seem to lead to the paradoxical conclusion that a poor community in which saving is a very small proportion of income will be more subject to violent fluctuations than a wealthy community where saving is a larger proportion of income and the multiplier consequently smaller.
This conclusion, however, would overlook the distinction between the effects of the marginal propensity to consume and those of the average propensity to consume. For whilst a high marginal propensity to consume involves a larger proportionate effect from given percentage change in investment, the absolute effect will, nevertheless, be small if the average propensity to consume is also high. This may be illustrated as follows by a numerical example.
Let us suppose that a community’s propensity to consume is such that, so long as its real income does not exceed the output from employing 5,000,000 men on its existing capital equipment, it consumes the whole of its income; that of the output of the next 100,000 additional men employed it consumes 99 per cent., of the next 100,000 after that 98 per cent., of the third 100,000 97 per cent. and so on; and that 10,000,000 men employed represents full employment. It follows from this that, when 5,000,000 + n x 100,000 men are employed, the multiplier at the margin is 100/n, and n(n + 1)/2.(50 + n) per cent. of the national income is invested.
http://www.marxists.org/reference/su...heory/ch10.htm
Infrastructure Spending Builds American Jobs
Public Investments Help Private Businesses Create Jobs
By Kristina Costa, Adam Hersh | September 8, 2011
Jobs induced by direct and indirect hires when they make consumer purchases with their paychecks
http://www.americanprogress.org/issu...structure.html
Infrastructure Spending Stimulates the Entire Economy
Pat O'Malley, Yahoo! Contributor Network
Jun 29, 2011 "Share your voice on Yahoo! websites. Start Here."
The Keynesian economic theory is one of the few classic economic principles that is based in reality. It maintains that government should increase spending during a recession. It should buy more of the things that government normally buys.
Those things are new and repaired roads, bridges, dams, harbors, levees, tunnels, buildings, schools, parking garages, subways, railways, parks, sewers, stadiums, airports, and other public facilities. That spending creates jobs for construction companies and workers. Those projects create demand for the supplies, equipment, tools, and other materials that they need for those projects. It creates demand for the trucking companies to ship them and the warehouses to store them. That creates jobs in all of those industries. If the companies supplying the construction industry have enough work, they can spend some of their revenue to hire more employees or to upgrade their own facilities. See, more demand, more jobs.
Then all of those workers have paychecks that they can spend on groceries, clothing, furniture, cars, houses, utilities, entertainment, appliances, restaurants, vacations, and all sorts of things. That creates demand in those industries. And that creates jobs. If those companies have enough work, they can spend some of their revenue to hire more employees or to upgrade their own facilities. See, more demand, more jobs. And government gets its new stuff built and its old stuff fixed. See. Everybody wins.
http://voices.yahoo.com/infrastructu...69.html?cat=55
06 Jun 2012, 9:53 am
It doesn't really matter as long as you're moving cash. The idea is based on velocity of money, more exchanges and transactions means more economic activity means more jobs in the private sector.
Infrastructure of course has the added benefit of providing a public utility, but that's not the essence of the idea. The essence of the idea is that working people (as well as the very poor) tend to spend their money, whereas, the rich save more of theirs and assets just sit doing nothing. Like how corporations right now are sitting on vast amounts of liquid assets rather than investing them, because there are no good investments. The government moves some of this money into the pockets of citizens, who spend it. Demand for consumer goods go up, you have to hire more people to produce and retail them. Those people make money, and they want to spend it, and demand goes up again and so on and so forth. The basic principle is to kickstart spending and make sluggish money get moving.
06 Jun 2012, 10:18 am
The idea is that when government spends money paying people salaries and increasing the demand for labor, this puts more money in the hands of the consumers and companies, which in turn results in increased consumer spending and private sector spending.
The private sector requires a degree of predictability since it can and will go bankrupt if expenditures do not net a positive return, the government can in many cases print money and doesn't have to worry about bankruptcy so long as people can be taxed. In an upswing it also makes sense to have higher taxes and thus government income since it creates a buffer for the inevitable downturn.
Let me know if you want a more in depth explanation.
07 Jun 2012, 7:44 am
There is also the other side: that the government runs surpluses when times are booming, not only to have funds for the eventual downturn, but also to reduce economic activity (if the economy is running at full capacity, then inflation becomes a concern). The idea of the government running surpluses is politically untenable. So, the Federal Reserve Board becomes the primary guardian of the economy, through tinkering with interest rates.
07 Jun 2012, 11:40 am
Well, the economic ideas presented by John Keynes where first tried by President FDR in the 1930s. And at the time big government ideas were in vogue around the world. Europe was experimenting with fascism and socialism. Russia had turned communist a few decades earlier. Here in the US we turned to FDR's New Deal programs.
In the end though even FDR's Treasury Secretary Henry Morgenthau said the ideas of larger government spending, Keynesian, to spur the economy had not worked. The idea that the government knows how to take money from productive sectors of the economy through taxes and give to other sectors to make them grow didn't workout well.
"CBO Refutes Obama's Slippery Spending Claims"
http://news.investors.com/article/61384 ... double.htm
snippet:
That's not what FDR's Treasury Secretary Henry Morgenthau told the House Ways and Means Committee in 1939, in what New Deal historian Burton Folsom calls "his confession — spoken candidly." Morgenthau admitted, "We are spending more than we have ever spent before, and it does not work."
Additionally, In todays modern America we have the problem of high regulation burdens delaying projects for years to decades. It isn't possible to build large train projects, solar panels in the dessert, oil pipelines from Canada, hydro-electric damns quickly in todays America. As the President even mentioned on wanting to begin large government spending programs - shovel ready projects are no longer shovel ready.
"Why Nothing Is “Shovel Ready” Anymore"
http://blogs.the-american-interest.com/ ... y-anymore/
excerpt:
He shouldn’t have been: the essence of blue social policy is to make everything complicated and hard.
In the Depression, shovel ready still meant something. No OSHA inspectors, no EPA paperwork: if the government wanted to open a camp and put 1,000 untrained young men to work clearing brush and draining the local swamp, it could do it without tripping over red tape — and without armies of trial lawyers looking to sue on behalf of any temp workers hit by falling trees, bitten by snakes, or scared by spooky bats.
These days, it would take months if not years to get all the permits in line to plan and build the camp; put the sanitation facilities in, get the right fire extinguishers from the licensed suppliers, develop a plan for waste disposal and recycling. Then the greens take you to court to protect the wetlands and the lesser bramble thrushes and spiny skinks within.
Multiply by 100,000 for anything big like a bridge or a dam or a new section of highway. And don’t even think about windmills where the Kennedy family might see them.
We’ve created such an intricate and expensive regulatory environment these days that you can’t put people to work on real projects even if you try....
07 Jun 2012, 11:49 pm
The private sector requires a degree of predictability since it can and will go bankrupt if expenditures do not net a positive return, the government can in many cases print money and doesn't have to worry about bankruptcy so long as people can be taxed. In an upswing it also makes sense to have higher taxes and thus government income since it creates a buffer for the inevitable downturn.
Let me know if you want a more in depth explanation.
It is like sloshing water in and out of ballast tanks to keep a ship stable in rough seas.
Good old negative feedback.
ruveyn
