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To what extent can the post-war boom be attributed to Keynesianism - Essay Example

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To what extent can the post-war boom be attributed to Keynesianism? 1. Introduction The interaction between politics and markets cannot be doubted. In fact, the ability of markets to face strong economic turbulences has been related to the potential of local governments to foresee threats and to implement appropriate plans for managing the crisis…
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To what extent can the post-war boom be attributed to Keynesianism
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To what extent can the post-war boom be attributed to Keynesianism

Download file to see previous pages... The ideas included in Keynes’s famous book, ‘The General Theory of Employment, Interest and Money, which published at 1936’ (Arnold 2008, p.226) are presented for showing the key elements of Keynesianism. Other ideas proposed by Keynes in regard to markets and economics are also used in order to respond to the following question: Has Keynesianism influenced the post-war boom and at what level? It is proved that Keynesianism has highly contributed in the development of the post-war boom but the involvement of the above framework in this phenomenon has not been direct, in the context described below. 2. The method of Keynes The understanding of the role of Keynesianism in the post-war boom requires the explanation of the key aspects of the specific economic framework. In general, Keynesianism is based on the idea that ‘aggregate demand is influenced by a series of decisions, both public and private’ (Davies and Green 2010, p.27). Public decisions seem to be more powerful in influencing aggregate demand, compared to private decisions (Davies and Green 2010). Public decisions are those involved in a country’s ‘monetary or fiscal policy’ (Davies and Green 2010, p.27), as this policy is designed and implemented by the local government. It should be noted that in the context of Keynesianism ‘changes on aggregate demand are not always anticipated’ (Davies and Green 2010, p.27). Another characteristic of Keynesianism is the following one: for Keynesianism the changes on demand are often revealed with delay (Davies and Green 2010). In this way, there is no time for aligning wages with the actual level of demand, a fact that results to unexpected increase or decrease of labor (Davies and Green 2010). In other words, even if the vulnerability of aggregate demand towards public and private decisions is known, the measures taken by governments for securing a balance between demand and prices, including wages, are often ineffective (Davies and Green 2010, p.27). This means that Keynesianism offers the basis for the explanation of markets’ trends but it cannot provide a strategy for limiting markets’ exposure to changes. Another important element of Keynesianism is the relationship between consumption and income (Arnold 2008, p.226). The above relationship is likely to have three modes: a) the level of disposable income is a criterion influencing the level of consumption; b) as the disposable income increases so does the consumption and vice versa and c) any change on disposable income is followed by changes on consumption (Arnold 2008, p.226). Kadish (2010) focused on the view of Keynes in regard to market controversies. According to Kadish (2010), Kaynes considered these controversies had been resulted mostly because of communication failures and did not reflect the actual status of the economy (Kadish 2010). As a result, three different approaches would be appropriate for resolving problems related to the performance of markets: a) the positive; this approach would focus on the actual status of a market, b) the normative; this approach reflect the status that a market could have and c) the practical; this approach focuses on the tools that would be used for reaching a solution (Kadish 2010, p.118). In general, Keynesianism can be considered as related both to ‘classical macro-economics and effective demand’ ...Download file to see next pagesRead More
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