Dealing with the deficit would be a long term issue: it would take a back seat to dealing with the problem of lower production and higher unemployment. Once those problems are solved, the deficit can fix itself to a large extent through an increase in income. The original Keynes theory would mean that the government would only increase government spending to deal with the crisis. Modern day Keynesians would be more likely to use government spending as a tool beyond the crisis.
The tools that Keynes would advocate for the government to use in order to increase aggregate demand would include all of these, and in this order (the order that Keynes believed would have the most effective and desirable outcome): An increase in government purchases, a decrease in taxes (targeted to the people who would most likely spend the additional disposable income), and various monetary policies intended to increase the money supply and decrease interest rates.
By the way, when Monetarists came on the scene in the 1940s to provide the first major opposition to Keynesian thinking, they did not disagree with any of this, except that they would put monetary policy first instead of last on that list.What is the keynesian view on the financial crisis?
Keynes did not have much to say about the role of bank failures in the depression. It was only later research than made economist believe that the banks were a critical to the functioning of the economy. As far an I know the "Keynesian" did not react to the financial crisis any differently than other economists. Most thought something needed to be done to save the financial system, but there was a lot of disagreement about the specifics of what to do.
One secret of economist is that most of them do not understand how the financial system work , they are big picture people and do not know any more about derivatives than we do.
He means it might be something wrong with the demand for money.He cannot use the exchange equation or the falling money from the sky story to make people understand what is the real cause of the crisis.What he has figured it out is that the demand for money must be more than the supply of money. And when people are good and rational, the one to be blamed is the government. The crisis is caused because the government has asymmetric information which is the same as in the used care market or the banking and insurance sector.Some politicians might be panic because of the budget deficits. Some are shy from debts but do love the tax cut.What is the keynesian view on the financial crisis?
I can't really tell you. I'm a second year economy student with a philosophy degree.
So do feel free to think of me as a volunteer weatherman in a cheap suit for a community TV station.
Here's my own take on that question.
As a Canadian, I have to admit the ideas of M. Keynes played a great role in the medium to long term policies of my country, which only has begun to change under the Harper government, and perhaps late Chr茅tien.
The idea was that a lot of basic services would be governmental. But that's nothing new. The government built the railroad from East to West, with the aid of the private sector. There is something to be said for this: A lot less bankrupt railroads and abandoned lines than in the U.S.
So Keynesianism kind of comes naturally to me.
Canadian, Keyniasian, coincidence?
Anyway...
Probably that so-called conservative governments in the states could never justify their spendings and their policy of tax-cutting at the same time.
(We are supposing a national debt, all things being equal..., is bad.
When the crisis hits (Keynesians tend to think along the lines of: These things happen. You can't control every factor).
In a keynesian world, the government has been taxing profit for a rainy day.
But American conservatives had been spending it and later on, come to think of it, so did Obama.
The government can't afford to be the "savior" of the economy in the way Keynes wants it to be, unless it agrees to levy a lot of taxes.
Which nobody likes, per se, of course.
On the other hand, you know... having your cake and eating it, that kind of stuff...
Keynes would say:
Let's get out of the hole as fast as possible, but with smart (emphasis on smart) investments for the gov. War is not a smart investment. Stop the war.
Never mind reducing the taxes.
Never mind the deficit (up to a certain point of course) if the economy does not restart and continue more or less as it was before the crisis, the deficit will increase because the gov won't be able to collect taxes from people having no revenue.What is the keynesian view on the financial crisis?
That the government should spend more and more of the private sector's resources. The fact that this has never produced anything positive in the past would not dissuade them.
we're screwed
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