Wednesday, 16 January 2013
Economics- A Keynesian Interpretation
The invisible hand confronts the unlimited wants while reconciling the limited resources. It progresses via supply and demand, through elasticity and productivity and via the monopolies and oligopolies of the market. Its palm makes contact with fiscal policy, all while tackling inflation and recession with its thrifty fingers and priming the pump of the money supply. If economics were comparable to an invisible hand, such an allegory would fit pristinely; but in reality many rather visible hands premise the headway and direction of the economy. It is the emergence of Keynesian thinking, policy and schools of thought that has produced a fervent and deep-seated impression upon the mechanics and behaviours of macroeconomic affairs; one that remains superficial in its stimulation of such affairs and fallacious in its overall approach. Looking at economics through the Keynesian lens, we realise that productive activity is determined by aggregate demand in the short run and that its correlation with aggregate supply does not imply causation, such that aggregate demand does not influence aggregate supply. It is the interaction between the public and private sectors and the interplay between government stimulation and control that maintains the crucial cyclic and circular flow of currency, thereby encouraging spending and consumption to drive economic stimulus that is at its crux. Quite distinct from the laissez-faire paradigm, which champions the exclusion of the public sector; rather conflicting with the Austrian school which advocates a free market and conflicting with the classical doctrine of a vertical aggregate supply curve which responds to demand with increased prices rather than production. The Keynesian spending cycle is one that reveals further instances of economic rinsing and repeating, superficial and transient stimulus; by which new legislation is passed for government spending, resulting in liquidation of tax dollars and commissioning of central bank to produce additional currency, adding to public debt and the money supply; thus decreasing value of currency and increasing gross domestic product based on the inflated money supply allowing the government to continue spending more. Such quantitative easing is conducive to the image of the gross domestic product yet damaging to the the value of currency as well as the players in the economic game. One where the factors shaping employment, production and inflation are affected by those factors that fashion productive activity and the rigidity of wages coupled with the stickiness of prices stands as one of the defining factors of the paradigm arising from the Keynesian interpretation of economics. An interpretation that seemed applicable during the epoch of the Depression yet one that was magnified and embellished to illogical and sophistic extents.