Great Economical Thinkers:
Keynes
Lord John Maynard Keynes [2] (1883 – 1946) was an English economist known as the founder of modern macroeconomics. He is one of the most influential thinkers of all times. In his book “The General Theory of employment, interest, and money” he challenged classical economic theory that insisted that economies self-correct over time, and that government involvement will always do more harm, than good. Instead, Keynes focused on spending. He suggested that as consumer spending falls, the government can stimulate the economy by increasing spending and increasing the money supply. In his book, he outlined the logical and mathematical reason for his conclusions, where he explained that government should intervene and not sit around and do nothing waiting for the situation to self-correct. Instead, the government should actively stimulate the economy. Government spending in the economy leads to more spending, economists call this the “multiplier effect”. When the government spends money it becomes somebody’s income and they save a portion of that and they spend the rest. That spending becomes somebody else’s income and they spend money and they save the rest. This happens over and over again (multiplier effect). An initial change in spending causes an effect on the entire economy and leads to more total spending. The total amount depends on how much people spend of that new income. This is the idea behind what Keynes calls, the marginal propensity to consume, the more people spend, the larger the multiplier effect. The idea of the multiplier also explain why we have recessions. If people think the economy is going to be bad, and that they might lose their jobs they are likely to decrease the amount they spend, perhaps going out to eat less often. Restaurant owners see their sales drop, so they can lay-off some workers and these workers have less income, and they buy less of other stuff, causing other workers to lose their jobs. Again there is a rip-off effect but now it’s pulling down the economy. Keynesian economists believe that government spending is needed when there is a recession, because the multiplier effect will need more spending, more jobs, more spending, and hopefully more growth.
Do not miss this video, Hayek and Keynes take a 2nd Round!
More basic economic lessons for those who never studied economics (but love to talk about it), to come!!!
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