1. How were the conditions in 1935 and 2013 similar? What did John Maynard Keynes propose to resolve this crisis in his book?
Both 1935 and 2013 are two years during which the world’s economy went through economic crises. Specifically, 1935 experienced the Great Depression, while 2013 faced the global financial crisis. The economists of the time predicted that the economy would come out of the depression without the intervention of the government (Kirshner 315). In 1935, unemployment was extremely high. In 1936, Keynes published his book ‘General Theory of Employment, Theory and Interest.’ While other economists suggested that the lack of employment was due to the low cost of labor, Keynes suggested that unemployment was linked to spending. Keynes suggested that the government should adopt the counter-cyclical spending policy and use taxes to stimulate the economic performance.
2. What anti-Keynesian ideas were put forth both in the 1930's and 2010's?
One of the leading criticism of the time suggested that the government should not intervene in the world’s global crisis, as the economy would revive on its own. Another critique suggested that the use of scientific methods to deal with economics has only aggravated the crisis over the years, and it would be best if the economists would not intervene. The theory by Keynes also went against what undergraduates in economics had studied, and yet, Keynes held a degree in statistics but wanted to challenge others who had majored in the field of economics.
3. Why was Keynes' book considered revolutionary and why has it remained impactful for 75 years?
Keynes demonstrates that governments can and should prevent depression from occurring. His predecessors attributed underemployment and many other factors which played a big role in the economy to pricing. Keynes came up with the output and the income theories which have continued to be used widely across the world (Kirshner 318). The passive reaction that had been suggested earlier failed to work in 1935 and during the 2008 global crisis. Keynes proved that the government had a responsibility of reinstating stability of the economy. Other economic theories have been tried and failed. All these theories prove that spending is key to any stable economy.
4. Why was and is the multiplier so controversial?
The multiplier suggests that the GDP is directly proportional to the fiscal spending. The multiplier is controversial since it is dependent on other factors such as unemployment. If unemployment is low, fiscal spending may have multiple consequences. If the rate of employment is low, the employee will be forced to share their GDP with the unemployed. The multiplier is also controversial because it is difficult to measure. The value is dependent on the economic circumstances of time and place. For the multiplier to be effective, a country needs to be operating at full employment, which is impossible.
5. How would Keynes have critiqued Obama's recovery program?
Obama’s recovery program was based on the stimulus package. The package, which was heavily reliant on pricing went against the Keynesian theories. Obama’s government tried to manipulate the economy by lowering the interest rates which proved to be ineffective. Keynes advised that the government could manipulate the economy by regulating the government spending (Krugman). When Keynes suggested that the government should intervene to reduce underemployment, he did not suggest that the government should increase its spending while at it. Government spending should be maintained so that the economy does not spiral. Keynes would therefore criticize Obama’s program due to its effect of increasing government spending.
6. The author seems to imply "we are all Keynesians", why did he mean by this? Where do you find yourself on Keynes' view about the role of government in managing the economy?
Keynesian economy focuses on government spending and how it affects inflation and output. A Keynesian is someone who believes that the GDP is influenced by other decisions which include both private and public (Krugman). These include both monetary and fiscal factors. I’m of the view that the government holds a strong and influential position in the economy of any country. The government controls many variables which influence a country’s economy, and government spending is one of the most crucial aspects of an economy. If the GDP is considerably high, but government spending remains high too, this leads to inflation and the country’s economy remains poor.
Works cited
Kirshner, Jonathan. "Keynes, capital mobility and the crisis of embedded liberalism." Review of International Political Economy (1999): 313-337. Web. <http://courses.arch.vt.edu/courses/wdunaway/gia5524/kirshner11.pdf>.
Krugmanm, Paul. "How Did Economists Get It So Wrong?" The New York Times 2 September 2009. Web. <http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=0>.
