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Social no more
Is Keynes’ theory relevant today?
14/05/2009

Nobel laureate Paul Samuelson wrote, “Economists have correctly predicted nine of the last five recessions.” Poor John Maynard Keynes. Falling to gallery criticism, his theory has been much criticised over the years.

Keynes’ ‘The General Theory of Employment, Interest and Money’, which was published in 1936, states that there is a chance of aggregate demand to be insufficient during a downturn, and this leads to high unemployment and low output. In such a situation, government intervention by lowering interest rates and increasing investment to increase aggregate demand will help recover the economy. Franklin Roosevelt was amongst the more famous leaders who were influenced by this theory. He adopted some aspects of this theory amidst The Great Depression. The success of Keynesian theory was further witnessed after the World War II in rebuilding war ravaged countries. It became more prevalent in socialist-democratic European countries and even in the US in 1960s.

However, what’s the situation today? Surprisingly, J. M. Keynes doesn’t seem to have lost his relevance even today. The present economic downturn is evidence enough. Erstwhile hard-core capitalist countries are shamelessly [given their erstwhile capitalist and anti-’socialist’ proclivities] following the Keynes path this time again. For examples, while the US has announced a gigantic stimulus package of $787 billion to overcome the recession, Japan – which has been undergoing recession for over a decade – has announced several stimulus packages, the latest being $687.7 billion in 2009. Germany is another economy to announce a package of $67.9 billion in 2009. China, with its $585.6 billion stimulus, is then no surprise at all.

Then why the two faced approach where US, for one, officially proclaims communism to be a quasi-evil, and on the other hand follows socialistic tenets to the tee? There’s this man called Obama who lifted sanctions on Cuba for the first time in many years, accepted talks with Iran without conditions and even has talked about talking with terror groups... And we know he ain’t no hypocrite.

By:- Akram Hoque
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