Transcript We Forgot Everything Keynes Taught Us

We Forgot Everything Keynes
Taught Us
Robert Skidelsky
The Washington Post
19/10/2008
1. Keynesian economics (1)
The six principles of Keynesian economics:
(1) aggregate demand is influenced by monetary and fiscal
policies.
(2) changes in aggregate demand have greatest short-run
impact on real output and employment.
(3) prices and wages respond slowly to changes in supply
and demand, resulting in shortages and surpluses.
(4) periods of recession/depression are economic maladies.
(5) stabilization policy is necessary to reduce the amplitude of
the business cycle.
(6) unemployment is a more important issue than inflation.
1. Keynesian economics (2)
Keynesian economists believe that
(1) macroeconomic fluctuations
significantly reduce economic wellbeing,
(2) the government is knowledgeable
and capable enough to improve
upon the free market, and
(3) unemployment is a more important
problem than inflation.
2. Monetary economics
(1) Examine the effects of monetary system,
including regulation of money and associated
financial institutions and international aspects.
(2) Attempt to provide a more micro-based
formulation of the demand for money and to
distinguish valid monetary relationships for
micro or macro uses, including their influence
on the aggregated demand for output.
(3) Derive and test the implications of money as a
substitute for other assets.
3. Monetarism by Friedman
(1)
(2)
(3)
(4)
Theories based on empirical research.
Challenge the basic Keynesian model.
Insist on a natural rate of unemployment.
Insist on minimizing the role of
government in favor of the private sector.
(5) Emphasize that monetary policies can
prevent depression.
4. Main ideas
(1) Introduction: Lack of a economic theory
to explain the financial meltdown.
(2) The New Economics: concept and
achievements.
(3) The new “science” of monetary
management.
(4) Mistakes of the new theories.
(5) Government spending and the rescue
operations.
(6) Conclusion: the new economic theories
are misleading for policymakers.
5. Structure: A Critical Essay
(1) Introduction (Para. 1-2)—lack of a theory
to explain the financial meltdown.
(2) Background (Para. 3-7): Keynesian
theory and its opponents.
(3) Analysis(Para. 8-11): Mistakes of the new
theories.
(4) Analysis (Para. 14—16): Government
spending and rescue opperations.
(5) Conclusion—the new theories are
misleading for policy makers.
6. Questions for discussion
(1) What are the major differences
between Keynesian economics and
modern monetary economics?
(2) Can the rescue operation of the
Obama government help the
American economy to recover? Why
or why not?
(3) What lessons can we learn from the
global financial market?