Bob Cropf

Posts Tagged ‘Neo-Classical’

Why Keynesianism will (or will not) work

In Free-market, Keynesianism on February 26, 2009 at 1:20 PM

This article is a neo-classical take on Keynes. It presents the rationale behind why Keynes’ theory is supposed to work, which is the multiplier effect. In other words, federal spending for infrastructure and other things will result in additional GDP (an increase in the aggregate demand).

The article’s author does not believe this. He articulates a neo-classical response when he says that

Of course, if GDP is adjusted for quality, the multipler is most likely negative, as resource allocation is directed by government officials, not consumer demands.

I am not sure what he means by “quality” and, maybe if you read the article more closely than I, then something will immediately leap out at you. However, I believe it has to do with “consumer demands.” Again, we are faced with the issue that Galbraith raises, that is, can government produce wealth? Skeptics, such as classical economists, doubt this and so argue that only consumer demand can result in “quality” GDP. Presumably, this increase in aggregate demand would not come as the result of more bridges, roads and other public goods rather than increasing output of televisions and cars (i.e., what consumers want). Hence the author’s logic is that only private consumer goods will produce a true multiplier effect on the economy.

Keynesian vs. Neo-Classical

In miscellaneous on February 8, 2009 at 7:19 PM

In the January 30 show, “The New Boss” (Act Three), This American Life has a very clear break down of the neo-classical vs. Keynesian economists battle since World War II, culminating with the debate of the current stimulus. Includes interviews with Blinder and Cowen. Also includes a brief biography of Keynes – interesting guy.

This American Life also did two other shows in 2008 that were very helpful in outlining the whole mess that we are in. The first one was in May, “The Giant Pool of Money’, about the mortgage crisis. The second one was in October, “Another Frightening Show about the Economy”, about the credit market collapse.