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Politics : Politics of Energy -- Ignore unavailable to you. Want to Upgrade?

To: RetiredNow who wrote (4625)	1/29/2009 4:48:13 PM
From: RetiredNow	Read Replies (1) \| Respond to of 86355

Hi all, very well worth the read. It presents both the pros and cons of Keynsian theory and explains what happens when the Fed can't lower rates further, which is the situation we find ourselves in now. Seems like a fairly unbiased article. Draw your own conclusions. Obama Gives Keynes His First Real-World Test by Adam Davidson and Alex Blumberg npr.org Cowen says Keynes corrected what he saw as a fundamental error in the economics that had come before. Classical economics teaches that if there's a downturn, the economy will eventually sort itself out. If people aren't buying enough, prices will drop to a point where people start spending. Keynes' radical insight was to look out the window in the 1930s and see that sometimes things don't right themselves. The economy goes into a downward spiral. The usual dynamic of supply and demand breaks down. "A failure of effective demand is what he called it," says Alan Blinder, a Princeton economist who served as economic adviser to President Bill Clinton. Basically, people aren't spending enough money, either because they don't have any or because they got laid off or are afraid they're about to get laid off. If people aren't spending enough money, there's no way for the economy to automatically adjust. During the Great Depression, no one had figured out how to get people spending again. Then came Keynes. "The Keynesian prescription is if all else fails, the government can spend the money," Blinder says. Normally, in a free-market economy, the public doesn't look to the government to prop up spending. "But Keynes' idea, which was revolutionary at the time, is if the private sector won't do it, then the public sector can do it as a fill-in stopgap," Blinder adds. ..... "When I took macroeconomics in the 1980s and early 1990s, the textbooks explained the basic system, but then spent a few chapters showing why the Keynesian system did not work," remembers economist Chris Edwards, now of the avowedly anti-Keynesian Cato Institute. The think tank was founded in 1977, near Keynesianism's lowest point. Edwards says he thought the debate of Keynesianism was settled in the 1980s. Now, with the new stimulus package before Congress, the Keynesians are back — and economists across the spectrum are calling for government spending. Where are the theorists who oppose it? "I thought this sort of kindergarten Keynesianism, as I call it, the simple idea that the government can spend more money to grow the economy, had died in the 1970s," he says. "But I was wrong."