the life of john maynard keynes & an
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TRANSCRIPT
By: Benjamin Sanders
The Life of John Maynard Keynes & an Overview of
Keynesian Economics
John Maynard Keynes was born on June 5, 1883
He was born in Cambridge, England into an upper class family of intellectuals
Keynes did very well at Eton as well as Cambridge University, where his focus was mathematics
At Cambridge University, he became friends with members of the Bloomsbury group of intellectuals and artists
Keynes’ Life
Upon graduating, Keynes went to work in the India Office
While at the India Office, he earned a fellowship at King's
College
In 1908, he quit the
civil service and returned
to Cambridge
Keynes’ Life Continued…
After World War One started, Keynes joined the treasury
After the British were victorious, they imposed huge reparations on Germany at the Versailles peace treaty. This did not sit well with Keynes
Keynes’ Role In Post-War Europe
Keynes published the very successful book, 'The Economic Consequences of the Peace'. In this book, he criticized the excessive war reparations demanded from a defeated Germany
He also predicted that it would foster a desire for revenge among Germans…
War Role Continued…
In 1926, he married Lydia Lopokova, a Russian ballerina
Love Life
In 1931, at the invitation of the University of Chicago, Keynes travels to America to give a lecture on the Harris foundation.
His chief desire is to study America's economic conditions at first hand
He has interviews with senior people in the Federal Reserve and with President Hoover. He is pleased with the Federal Reserve's attitude that it should promote economic expansion
Keynes in America
Keynes continues to advocate that the government should borrow money and undertake large-scale public works to stimulate the economy
This helps to foster the “New Deal”
Public Works Projects
While in America, he studies its economy and its stocks and bonds for personal investment purposes
He decides that share prices of public utilities are priced for exceptional value and he invests a large part of his own funds
The risk pays off big time
In June of 1934, Keynes visits America again…
In 1936, Keynes published his best-known work, 'The General Theory of Employment, Interest and Money‘
Heavily anticipated, cheaply priced and favorably timed for a world caught in the grips of the Great Depression, the General Theory made a splash in both academic and political circles
Keynes, the Author
With the ‘General Theory’, as it became known, Keynes sought to develop a theory that could explain the determination of aggregate output, and as a consequence- employment
He stated that the critical determining factor regarding this issue was aggregate demand
‘General Theory’ Continued…
Keynes wanted to show Classic economists that the current system would not just “fix itself” out of the Great Depression. He sought to mathematically prove that the United States was in a state of equilibrium, even with widespread unemployment
GDP= C + I + G + X, where C= Consumers I = Investment (business) G= Government Spending and X= Exports-Imports. The current “X” factor in the United States is approximately -2% currently
Powerful Equation
The best seller discussed the possibility of using government fiscal and monetary policy to help eliminate recessions and control economic booms
By writing 'The General Theory of Employment, Interest and Money', Keynes almost single-handedly laid the framework and ideas behind what became known as "macroeconomics".
Keynes’ Impact
In 1942, he was made a member of the House of Lords in England
During the war years, Keynes played a critical role in the negotiations that would shape the post-war economic order on a global scale
Nearing the End…
In 1944, Keynes led the British delegation to the Briton Woods conference in the United States
At the conference he played a significant part in the planning of the World Bank and the International Monetary Fund
Final Great Achievements
John Maynard Keynes died on April 21st, 1946
Death of Keynes
Keynesian economics is a dynamic system
that would take hundreds, if not thousands, of
hours to describe and analyze in detail. The
following is my attempt to capture some of
Keynes’ central economic concepts and
explain them to the audience in a nutshell.
Disclaimer
Keynesian economics is a theory of total
spending in the economy, called aggregate
demand, and its effects on output and
inflation
In a Nutshell…
Keynes stated that if Investment exceeds Saving, there will be inflation. If Saving exceeds Investment there will be recession. One implication of this is that, in the midst of an economic depression, the correct course of action should be to encourage spending and discourage saving (the current state we find ourselves in).
Keynesian Nuggets
Keynes took issue with Say's Law - one of the economic "givens" of his era. Say's Law states that supply creates demand. Keynes believed the opposite to be true - output is determined by demand.
Say’s Law
Keynes argued that full employment could not always be reached by making wages sufficiently low. Economies are made up of aggregate quantities of output resulting from aggregate streams of expenditure - unemployment is caused if people don't spend enough money.
Full Employment
In recessions the aggregate demand of economies falls. In other words, businesses and people tighten their belts and spend less money.
Lower spending results in demand falling further and a vicious circle ensues of job losses and further falls in spending.
Keynes's solution to the problem was that governments should borrow money and boost demand by pushing the money into the economy. Once the economy recovered, and was expanding again, governments should pay back the loans.
Regarding Recessions
Keynes's view that governments should play a major role in economic management marked a break with the laissez-faire economics of Adam Smith, which held that economies function best when markets are left free of state intervention.
Clashing with the Classics
During the 1970’s, stagflation was plaguing America
Stagflation is a condition of slow economic growth and
relatively high unemployment - a time of stagnation -
accompanied by a rise in prices, or inflation
Stagflation occurs when the economy isn't growing, but
prices are; which is not a good situation for a country to be
in
The Death of Keynesian Economics
During the 1970s, world oil prices rose dramatically, fueling sharp inflation in developed countries including America.
“Stagflation”
This economic system called for widespread tax cuts, decreased social spending, increased military spending, and the deregulation of domestic markets
“Reaganomics” to the Rescue
Reaganomics was partially based on the principles of supply-side economics and the trickle-down theory
These theories hold the view that decreases in taxes, especially for corporations, is the best way to stimulate economic growth: the idea is that if the expenses of corporations are reduced, the savings will "trickle down" to the rest of the economy, spurring growth.
Trickle Down Theory
America is slowly readopting some Keynesian principles.
The recession is declared over, but we are clearly not out of the woods
GDP must be rising at 3% or more to get us out of the current funk we are in
Current State of America
QUESTIONS?