what is Keynesian economics?

Answer 1

Giving the real short answer, the key to Keynesian economics is the theory that the government can (by the amount of government expenditures and tax policies) act either to increase total gross domestic product (by cutting taxes and raising expenditure -- i.e. running a deficit) or to decrease total gross domestic product (by raising taxes and cutting expenditure -- i.e. running a surplus). In the Keynesian theory, by using these two tools (taxes and spending) the government can keep the economy going at a smoother keel, minimizing both inflation and unemployment.

Answer 2

As others have stated, here is a detailed explanation.

http://en.wikipedia.org/wiki/Keynesian_economics

Another way of understanding it, is to compare the theories of John Maynard Keynes with those of other people who were his contemporaries.

In Keynesian economics, the goal is to help the owners of capitalism maximize their profits, and at the same time help our society in general suffer the least harm from upheavals such as unemployment and shortages.

Karl Marx had a theory that led to communism. The former Soviet Union applied that theory to farming, and used in their agricultural planning, which turned out to be a disaster, because they were not willing to accept the notion that their theories did not apply in the real world, let alone whether they work among real people.

Georgist economics are named after Henry George.
In Georgist economics, the goal is to serve the needs of many different people, not just the owners of capitablism, but also to give a quality life to the workers, and to preserve the environment for future generations.

Henry George came up with a tax structure that rewards people for being good to the environment, and has heavy penalties for anyone who harms it, while encouraging economic growth.
http://www.progress.org/cgo/
http://en.wikipedia.org/wiki/Georgist

So if we compare the different philosophies, using recent events.

When there is an environmental disaster, such as Katrina, Exonn Valdiz oil spill in Alaska, or the tsunami that killed many thousands in Asia, under Georgist economics that is a bad thing because people get killed, the environment messed up. Under Keynesian economics that is a good thing because the environment has zero value, while there is an investment in labor and capital is expended to clean up the environment.

Recently there has been much ado about off-shore outsourcing, and what impact it has on entry level jobs in the home nations. I rather suspect all 3 theories would think this is a good thing.

Keynesian because of huge profits for corporations that no longer have to pay prevailing wages and benefits, the others because other people in the world now have a chance at a more decent income.

Answer 3

Keynesian Theory, is an economic theory based on the ideas of 20th century British economist John Maynard Keynes. Keynesian economics promotes a mixed economy, where both the state and the private sector play an important role. In Keynes's theory, macroeconomic trends can overwhelm the micro-level behavior of individuals. Instead of the economic process being based on continuous improvement in potential output, as most classical economists had believed from the late 1700s on, Keynes asserted the importance of aggregate demand for goods as the driving factor of the economy, especially in periods of downturn. From this he argued that government policies could be used to promote demand at a macro level, to fight high unemployment and deflation of the sort seen during the 1930s. A central conclusion of Keynesian economics is that there is no strong automatic tendency for output and employment to move toward full employment levels.

Answer 4

Keynesian Economics is a method of analysing the behaviour of key aggregate economic variables such as output, employment, inflation and interest rates. British economist John Maynard Keynes initially developed this analytic structure (and as a result virtually established the modern field of macroeconomics) during the 1930s, as a method of understanding the GREAT DEPRESSION.

Prior to this time, economists generally believed that cyclical swings in employment and output would be relatively small and self-correcting. This classical approach argued that if overall demand in the economy weakened, causing a temporary drop in production and jobs, the resulting slack labour and product market conditions would force a rapid drop in both wages and prices, which in turn would operate to restore full employment.

The trauma of the Depression severely challenged such an optimistic view of macroeconomic behaviour. In his General Theory of Employment, Interest and Money (1936) Keynes argued that rigidities existed that would prevent the necessary equilibrating fall in wages and prices. As a result, a drop in demand could cause a fall in output and employment that was not quickly self-correcting and, indeed, might endure for some time. Keynes also identified a number of characteristics of market economies that would cause any demand decrease to be magnified into an even larger decline in overall demand. For example, worsening business conditions can cause firms to reduce investment in new plants and equipment with a consequent drop in overall expenditures.

Keynes argued that the answer to such destabilizing private-sector behaviour was an activist public-sector STABILIZATION policy. He specifically argued for increased government expenditures and lower taxes to raise demand and pull world output and employment out of their Depression slump. Subsequently, some other economists used Keynesian ideas to assert that stabilization policy could be used not only to prevent prolonged economic declines, but also to dampen inflationary booms and to promote high economic growth.

Keynesian economists counter that many of the difficulties of the last decades can be attributed to events (such as the rapid fluctuations in world oil prices) that are largely outside the control of national economic policies. Furthermore, while they acknowledge that some policy errors have been made, they assert that the application of Keynesian principles has kept the world from experiencing another Depression.


economics major, junior

Answer 5

The long story can be found here:

http://en.wikipedia.org/wiki/Keynesian_economics

An easier way to understand the Keynesian economics though is to compare the differences between this school and its forerunners (classical economics), contemporaries (neoclassical economics), and critics (monetarism, theory of rational expectations, and non-structural econometrics)...

Answer 6

Well these guys are all just giving long boring answers and such.

So the short version is this:
Country is undergoing a depression or recession.
Government borrows money.
Government uses money to pay people to do work. Landscaping, building houses, parks, fixing roads, etc...
Now people have jobs and money.
These people use their new money, to further help other people by buying their goods and services.
Now everything is all good again so people start paying taxes again.
Government uses this tax money, to pay off their debt.