Keynesian stroke in Twenty First Century

In year 2008 the death of the dream of global free-market capitalism was shadowed over the world economy. Where in an interview by CNN CEO of Deutsche Bank Mr. Josef Ackermann said "I no longer believe in the market's self-healing power." The financial meltdown did not belong to its universe. This Global crash brought a reminder of the volatility and fragility of capitalist economies, and an end to hopes that booms no longer culminated in busts. And now this all at a once economic downturn has brought Keynesian theory of economics in the light. If you are a student of Economics you might have gone through theory by John Maynard Keynes "The General Theory of Employment, Interest, and Money." Where he pointed out that in a downturn, an economy simultaneously has idle factories, unemployed workers and too little spending. This creates the possibility of a virtuous circle: Getting people to spend more will put the factories back to work, staffed by the previously unemployed workers. Put it another way, in the short run, when the economy is operating below its potential, expanding demand can create supply. This theory sought to bring about a revolution, commonly referred to as the "Keynesian Revolution" in 1936 A.D during the time of great depression. Unfortunately later on 1970s his theory was suppressed by economist like Milton Friedman and other who were less optimistic about the ability of interventionist government policy to positively regulate the economy. In this era he may no longer be taught on economics courses, and many economics students may not even know who he is, but in the wider political culture he is still a potent memory. Rober Skidelsky in his book 'Keynes:the return of master' says "He has been credited with rescuing capitalism once before, so it is not surprising that he should be back on the front page of Time, and spoken of approvingly even in the Wall Street Journal

However, the advent of the global financial crisis in 2008 has prompted a rethinking of the relevance of Keynes' ideas. The Return of Keynesianism can be understood in the context of various competing perspectives from which policy recommendations originate. A key issue of contention is the optimal level of government intervention in economic affairs. Keynesian words came to practice when robust government intervention were done to tackle the financial crisis and with consensus of Government bodies a series of major bailouts followedv(starting on September 7 with the announcement that the U.S. government was to nationalize the two firms which oversaw most of the U.S. mortgage market—Fannie Mae and Freddie Mac). Further more appointment of Lawrence Summers, Timothy F. Geithner and Christina Romer to principal economic positions in his administration by US Presdent Barack Obama reflected Keynesian thinking. In a speech on January 8, 2009, President Obama unveiled a plan for extensive domestic spending to combat recession, further reflecting Keynesian thinking. The plan was signed by the President on February 17, 2009.

The greater the role of finance in the modern economy, the more unstable the economy is likely to be, and a key role of the state is, therefore, to find ways to build trust by creating greater stability. Keynes did not advocate a single policy valid for all times and all circumstances, such as deficit financing. Given the uncertainty inherent in economic affairs, governments needs to be prepared to experiment the best ways to stabilise the economy in the circumstances that they faced. We can say that the stroke by J.M Keynese, which helped to recover from the Great Depression is one again played in Twenty First Century at 2008/2009 to prevent other one.

Cheers frm:
A.M. Dixit

Write ups source:
a) http://en.wikipedia.org/wiki/2008%E2%80%932009_Keynesian_resurgence
b) www.economyprofessor.com
c) http://www.newstatesman.com/books/2009/09/keynes-economics-economy-crash

Picture source:
www.economyprofessor.com