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Why Keynesianism is unable to solve today’s crisis January 14, 2014

Posted by sandyclaus in Politics.

The merit of Keynes was to start from this contradiction and re-introduce into economic theory the analysis of society as a whole. This is vital, especially to understand crises. It shows that in the long run it is pointless cutting wages to raise profits, as Keynes explained, as if we were considering single companies. This is also true when we analyse investment. The single capitalist must normally save before investing, but for the economy as a whole savings are created out of investment. In passing, we can see how the present so called “austerity measures” stem from confusion between micro-analysis and macro-analysis. In any case, Keynes emphasized the social dimensions: unemployment, investment and consumption. From this aggregate analysis, came the theoretical explanation of the crisis. Of course, practical measures to fight the crisis long predated Keynes; he simply provided a theoretical dressing for something many governments were already doing, although many were refusing to intervene following the “Treasury View”, i.e. that fiscal policy had no effect whatsoever on overall economic activity, an idea sustained in particular by the British Exchequer.

via Why Keynesianism is unable to solve today’s crisis.



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