Keynes, The Financial Crisis, And The Debt-Driven Economic Model Of The 21st Century

“… Keynes was primarily a monetary economist who believed that governments should only turn to fiscal policy – raising public spending and cutting taxes – when all other options had been exhausted. Fiscal policy was deployed in 2008-09, but only as a supplement to monetary policy.”

So what would Keynes say if he were still alive today and updating the General Theory?

  1. The riskiness of complex financial instruments is useless in a market gripped by panic – need to know the fundamental difference between risk and uncertainty
  2. We need to rethink the way economics is taught, with a much reduced emphasis on mathematical models and the restoration to the curriculum of economic history
  3. The global financial system has been made more vulnerable by the stripping away of controls that hindered the free movement of capital. Efficient markets are not necessarily effective markets so we need to draw a distinction between capital used for productive purposes and capital used for speculation as Lord Keynes argued.
  4. Cutting interest rates to zero and boosting the money supply through QE in a bid to recover from a financial meltdown is enough to halt the downward spiral seen in 2009 but not sufficient to bring about a lasting recovery.

Original Story: http://www.theguardian.com/business/economics-blog/2016/feb/07/keynes-helped-us-through-the-crisis-but-hes-still-out-of-favour

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