...Keynesian Economics: Tax-cuts and Spending Merriam-Webster defines Keynesianism as “that advocacy of monetary and fiscal programs by government to increase employment and spending (Keynesianism, 2012).” Investopedia gives a similar definition stating that Keynesian economics is “An economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability (Keynesian, 2012).” Basically, economists that believe in the Keynesian school of economics feel that spending, or investment by tax-cuts or an outright influx of cash, will create the same output in the economy as long as wages and price remain constant. This is considered to be a short-term solution to a recession or lull in the economy. Though not a Keynesian, Milton Friedman also agrees that wages and prices change very gradually and have limited flexibility in the short term (Blinder, 2012). Supply-side economics is considered to be a long term solution where decreases in marginal tax rates are said to create long term growth. The cuts give more expendable income that people and companies spend and lead to more employment. More employed people lead to a larger tax base and more revenue for the government. Further the ability to pay fewer taxes decreases the use of tax avoidance and keeps money in circulation (Gwartney, 2012). That being said, Keynes would have been a fan of the stimulus plan. He would have had the conclusion that...
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...Review of Keynesian Economics, Inaugural Issue, Autumn 2012, pp. 1–4 Statement of the Co-Editors Economics and the economic crisis: the case for change It is widely recognized that economic crises can sometimes trigger enormous change, with regard to both economic theory and the politics of governance. Today, the global economy is struggling with the fall-out from the financial crash of 2008 and the Great Recession of 2007–2009. The economic crisis that these events have generated, combined with the failure of the mainstream economics profession, has again put the question of change on the table. The economics profession stands significantly discredited owing to its failure to foresee the recession and the financial crash, its repeated over-optimistic forecasts of rapid recovery, and the lack of plausibility surrounding its attempts to explain events. Reasonable people do not expect economists to predict the daily movements of the stock market, but they do expect them to anticipate and explain major imminent economic developments. On that score, the profession failed catastrophically, revealing fundamental theoretical inadequacies. This intellectual failure has prompted us to launch the Review of Keynesian Economics. At a time of journal proliferation, some may wonder about the need for another journal. We would respond there is a proliferation of journals, but that proliferation is essentially within one intellectual paradigm. As such, it obscures the fact that the range...
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...Credible Keynesianism?: New Labour Macroeconomic Policy and the Political Economy of Coarse Tuning Ben Clift & Jim Tomlinson The article has been accepted for publication in the British Journal of Political Science © Cambridge University Press, 2006. Forthcoming, Volume 36 (2006). Material on these pages is copyright Cambridge University Press or reproduced with permission from other copyright owners. It may be downloaded and printed for personal reference, but not otherwise copied, altered in any way or transmitted to others (unless explicitly stated otherwise) without the written permission of Cambridge University Press. Hypertext links to other Web locations are for the convenience of users and do not constitute any endorsement or authorisation by Cambridge University Press. Ben Clift, University of Warwick b.m.clift@warwick.ac.uk http://www2.warwick.ac.uk/fac/soc/pais/staff/clift Jim Tomlinson, University of Dundee j.d.Tomlinson@dundee.ac.uk Abstract This article questions prevailing interpretations of New Labour’s political economy. New Labour’s doctrinal statements are analysed to establish to what extent these doctrinal positions involve a repudiation of Keynesianism. Although New Labour has explicitly renounced the ‘fine tuning’ often (somewhat problematically) associated with post-war Keynesian political economy, we argue that they have carved out policy space in which to engage in macroeconomic ‘coarse tuning’ inspired by Keynesian thinking. This capacity...
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...groups that leads to no action being taken. Supply side economics was an economic policy that was founded as an alternative to the very popular Keynesianism. In order to understand the pillars of Reaganomics and how they worked at trying to repair the disheveled economy, there is a need for a fundamental understanding of the differences between Keynesianism and Supply side. Keynesianism is a direct result of monetarism, which happens when there is more money circulating then the amount of goods being bought with that money. Thus, the increase in supply of money should be about equal to economic growth at any particular time so as to keep goods and money flowing smoothly. With Keynesianism, the government should regulate and establish what the right demands are. The economic health of the country is based on the portions of income that the people either save or spend. “If there is too low of a demand for goods, the governing body should aim to collect more than is spent in taxes through the creation of public works programs so as to help the demand back up to a normal, healthy, working level” (Bartlett). If the demand then skyrockets and becomes higher than is necessary, the government has no other choice but to increase taxation so as to maintain a healthy level of demand. Supply side is an alternative to the aforementioned Keynesianism, due to the fact that the latter lost a huge amount of popular support in the 1970s when it was apparent that it was failing. Supply side is opposed...
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...old wore out version of Keynesianism. This style might not fit the Presidents style of thinking and understanding the market is reading. The Keynesian theory was thrown out the window in the 1980's and took on the classic theory. WHAT IS THE CLASSIC STYLE This style was adopted by the World Bank because is believes is a free market and limited role in the states. (Econ online) Classic style believes that the economy is best left to the markets to run free and without control, to let the market have free reign will build itself and keep itself going without government or state control. The best way to do this is to promote entrepreneurship to make state owned industries private own, and redo the labor markets by making states at will or Right to Work by reducing the union power. The free-market approach, where markets alone are assumed sufficient to generate maximum welfare. The public-choice approach, which is an extreme New-classical model which emphasizes that all government is ‘bad’ and leads to corruption and the gradual confiscation of private property. The market-friendly approach, which suggests that, while markets work, they sometimes fail to emerge, and a government has an important role in compensating for three main market failures: missing markets, imperfect knowledge and externalizes. (Econ online) CLASSIC TRUMPS KEYNESIAN In the 1970 Classical, school started popping up everywhere because of the failure of Keynesianism to explain Stagflation...
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...Schools of Economic Thought By: Lenore E. Hawkins To be able to invest successfully, one must understand the major schools of economic thought and how they impact national and global economies. I like to break economic theory down into seven schools of thought: fascism, neoclassical economics, socialism, Keynesianism, monetarism, Austrianism, and supply-side economics. Economic theory is really just a set of beliefs concerning individual and group behavior. There is no consensus about which model is correct, but the one most used by governments is Keynesianism. Schools primarily teach neoclassical with a Keynesian slant, which is sometimes referred to as the neoclassical synthesis. The following is a very high level overview of these different schools of thought. Keep in mind as you read these that since the study of economics is a soft science these theories don t have perfectly clear definitions with uniform consensus and tend to evolve over time. They are a bit like religion, where for example Lutheran, Episcopalian, Protestant, and Catholic all are variations of Christianity. Since we aren t talking about something objective like E=MC2, these definition are of course subject to my interpretation. The oldest model is fascism which contends that all truth is just a matter of opinion thus we cannot really know anything useful. With this base premise, governments are free to do whatever they deem necessary. There are no limits. The most...
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...Do you agree with the view that the ‘industrial chaos of the winter of 1978-9 primarily accounts for Mrs Thatcher’s election victory in 1979? The Winter of Discontent was the the winter of 1978–79 in the United Kingdom, during which there werestrikes by public sector trade unions demanding larger pay rises, following the on-going pay limits of the Labour Party government led by Callaghan against TUC opposition to control inflation, during the coldest winter for 16 years. In source 3, Pugh states that, 'the industrial chaos of the winter of 1978-79 gave Mrs Thatcher her opportunity'. This suggests that industrial chaos of winter of discontent was the reason for Thatcher's victory in the 1979 election. Source 3 therefore strongly agrees with the statement. Pugh also says that if 'Callaghan held an election in the autumn of 1978, he might well have won.' This shows that Callaghan was personally more popular than Margaret Thatcher. Even though this was the case, the Conservatives had a parliamentary majority. This therefore suggest that it was the more short term reasons like the winter of discontent that gave Margaret Thatcher her victory. Additionally, the winter of discontent lead to a number of strikes by public workers who felt that they were being mistreated by the government following the cuts in public expenditure. These strikes lead to industrial chaos which in turn made Callaghan's government lose support which gave Thatcher an advantage. Another result from the industrial...
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...Erosion of the Welfare State Since 1979 Works Cited Not Included In this essay I will attempt to examine if and by how much the welfare state has been eroded since 1979. Due to length limitations I will have to oversimplify topics covered. However I will explore issues in a coherent frame work to scrutinize the continuity of the ‘classic welfare state, (Powell 1998). Many political theorists have debated the birth of the welfare state. Poor Law which can be dated back to the 14th century (Labourers Act) maybe considered the first step in a long journey to become what we recognise as the welfare state today (Midwinter1994, Jones 2000). However others classify the beginning of the Classic welfare state by the report written by William Beverage (1942) which identified ‘five giants’ of social disorder; want, idleness, squalor, disease and ignorance. The main focus of the solution was flat-rate contributions as well as flat-rate cash benefits, (Titmuss 1950; Hennessy 1992; Powell 1998). Drawing from these two points of view the foundation of the classic welfare state I will take the latter (Five Giants) as most credible, as most of the major features of the welfare state were initiated by the Labour and Conservative governments (Labour’s landslide victory of the conservations after World War two) from this point, such as the planned, approved and implemented universal non-selective NHS 1948. As we now have a beginning context we must explore when the erosion...
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...IS-LM model was initially developed by John Hicks in 1937 but was made popular in 1949 by Hansen in order ‘to provide a framework for analysing the factors determining the level of aggregate demand’. The IS-LM model is a short run model of the determination of output. It shows the unique combination of income and interest rates that lead to an equilibrium in both the goods and money market at the same time (Begg, 2008). The IS-LM model is presented on the diagram below. The IS (Investment and saving) curve represents all equilibriums for which total spending (consumption and investment) equals total output. It reflects equilibrium in the goods market and operates on the assumption that investment is equal to savings. (Pettinger, 2008) Keynesianism emphasizes the role that fiscal policy can play in stabilizing the economy. In particular...
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...Mariah Head S.I. Leader PSCI 1050.002 mariahhead@my.unt.edu Exam 3 Review This review is not all-inclusive. In addition to studying the material on this review, you should study your lecture notes, the textbook and the LearnSmart Activities. 1. Income tax is an example of which type of tax? a. Progressive b. Regressive 2. The principle of ___________ was the policy of making a military, political and ideological commitment to vulnerable countries in order to prevent the spread of communism. a. Containment b. Deterrence c. Marshall Plan d. War Powers Act 3. The theories of which economist helped justify the increase in government spending during the New Deal? a. Ben Bernanke b. Alan Greenspan c. Adam Smith d. John Maynard Keynes 4. Which of the following entities prepares the budget for Congress? a. Appropriations Committee b. Department of Monetary Management c. Congressional Budget Office d. Budget Committee 5. The conduct of international relations is known as a. Coercion b. Threats c. Subterfuge d. Diplomacy 6. When the government spends more than it makes in a fiscal year, it’s called: a. Deficit b. National Debt c. Surplus d. Balanced budget 7. The expenditures that the government is legally required to pay are called: a. Deficit spending b. Mandatory spending c. Discretionary Spending d. Required spending 8. Governors on the Federal Reserve serve a ___...
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...An even bigger attack on Keynesianism came from Robert Lucas, the founder of a theory called rational expectations. Although one aspect of this theory won Lucas the Nobel Prize in 1995, history has not been kind to the rest of it. Lucas himself has abandoned work on rational expectations, devoting himself nowadays to other economic problems, and his once broad following has almost completely dissipated. There are two main parts to rational expectations. First, Lucas believed that recessions are self-correcting. Once people start hoarding money, it may take several quarters before everyone notices that a recession is occurring. That's because individual businessmen may know that they are making less money, but it may take awhile to realize that the same thing is happening to everyone else. Once they do recognize the recession, however, the market quickly takes steps to recover. Producers will cut their prices to attract business, and workers will cut their wage demands to attract work. As prices fall, the purchasing power of the dollar is strengthened, which has the same effect as increasing the money supply. Therefore, government should do nothing but wait the correction out. Second, government intervention ranges from ineffectualness to harm. Suppose the Fed, looking at the leading economic indicators, learns that a recession has hit. But this information is also available to any businessman in any good newspaper. Therefore, any government attempt to expand the money supply...
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...by Keynes. This shows that Keynes belief in restoring the government by increasing deficits has failed. “Keynesian economics arose in the 1930s in response to the Depression. It never worked then, as the recession of 1929 extended into the decade long Great Depression. And it never worked anywhere it’s been tried since then, in the U.S. or abroad.” (Obamanomics: The Final Nail In the Discredited Keynesian Coffin, 2012) The Keynesian beliefs have increased unemployment, raised inflation into the double digits, and greatly increased interest rates. According to Forbes, Obama is spending huge amounts of money, increasing the federal deficit, just as Keynes believed. “Obama’s first major act in office was to pursue the unreconstructed Keynesianism of the nearly $1 trillion so-called “stimulus,” which we now know didn’t stimulate anything except government spending, deficits and debt.” (Obamanomics: The Final Nail In the Discredited Keynesian Coffin, 2012) While Obama promised the unemployment rate would not rise above 8.0% under the stimulus package, it rose to about 8.2% in May and would continue to rise. Keynes...
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...Valeria Ocaña 88244948 Short Writing Assignment- HIST 1302 QUESTION 1: How did World War II involve the entire population of the United States? Specifically, how did economic resources and popular support for the war influence American society during the war? Make sure to include the role of minorities. I see this time in history as one of the moments were there has been very drastic changes from decade to decade. After having studied the difficult periods of time in the 1920s and 1930s, specially with minorities, like women and African americans. I can see a huge shift during world war II and after war. It was a huge change in society. After being in a great depression came a massive flow of jobs, and opportunities, which lifted the American economy, and gave opportunities to minorities. The United States majorly influenced the American Society by the massive rise in economic resources such as war jobs in industry, business and agriculture, and popular support. In mobilizing the nation for war, the federal government expanded to dimensions and powers far beyond those of the the 1930s. The authority of the executive branch grew enormously as the government managed production, materials, and labor, rationed goods, set prices, limited wages, conscripted men and money, controlled information and sometimes shortened liberties, and spent and taxed more than before. The number of civilian employees quadrupled, from fewer than one million in 1939 to nearly four million...
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...Table of Contents Why were Keynesian ideas revolutionary? 2 How does Keynes theory work? 4 What economic conditions in your news article that require government intervention? Do you have faith that this intervention will be effective? 7 How have the economists’ views on Keynesian economics changed over time? 9 Is Keynesian economics dead today? 12 Works Cited 14 Appendix A 15 Why you should be wary of the Japanese “revival” 15 Why were Keynesian ideas revolutionary? Keynesian economics is a macroeconomic theory developed by John Maynard Keynes, who is a British economist. According to Keynesian theory, government intervention plays an important role in the economy, and focuses on short-term goals. It is used mostly in times of recession, inflation, unemployment to stabilize the business cycle, therefore active government policy is required and government spending is a good way to put money back into the GDP. (hupii.com) Keynes is famous for his simple explanation for the cause of the Great Depression during the 1930s. His idea was based on a circular flow of money, which states that when spending increases in an economy, earnings will also increase, and the outcome it will lead to even more spending and earnings (economic growth). His ideas had led to a revolution in economic thought. (martinfrost.ws) During the period of World War 2, United States president has spent enormously huge on defence which has that helped revive the U.S economy. Besides...
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...Most Powerful People list has central bankers from the U.S. Federal Reserve, the European Central Bank, and the Bank of Japan listed at 4th, 5th, and 6th respectively. * Explain why these three men are thought to be more powerful than most countries' leaders. * Illustrate the far-reaching effects of monetary policy by choosing one action the U.S. Federal Reserve (the Fed) has taken in the past 10 years and explaining its effects. * What action did the Fed take? When did this happen (month/year)? * How did this action affect interest rates and exchange rates? * How were banks and businesses affected? * What was the impact on international trade? * Do you believe U.S. monetary policy should follow Keynesianism or Monetarism? Explain your reasoning. Be sure to cite all references using APA style. The three central bankers named in the list of most powerful men are influential because they handle the monetary policy. Monetary policy is a powerful and immediate tool to affect the demand side economics of any country. Monetary policy operations have far reaching effects which are much more immediate then fiscal policy. This also renders monetary actions a bit dangerous as at least five of the eight post war recessions in US can be attributed to anti inflationary policies of FED. (Tobin, 2008, ret: www.econlib.org). So the power that resides in central bankers hands in enormous. Lets take the example of Global Depression that started in 2008...
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