Keynes was among the most important economists of the 20th century. The work that really cemented his place in economic history, though, was 1936's titled General Theory of Employment, Interest and Money. Most contemporary economists subscribed to the neoclassical theory that held that the problems of unemployment were best dealt with by leaving it to the market to reduce wage levels to a point at which employers would start to take people on again. Keynes disputed the idea that recessions were self-correcting. He made the argument that it was quite possible for an economy to be in equilibrium with less than full employment, and that high unemployment would depress demand, thus making an escape from recession difficult and slow. In his view, it was up to the government to stimulate demand by enacting public spending projects that would increase employment and by reducing taxation to encourage people to spend more.
Keynes's approach began to appear limited in relatively uncompetitive economies. A labour shortage and an excess of demand triggered stagflation – the combination of inflation with economic stagnation – and traditional Keynesian remedies seemed unable to control it.
Deep structural causes based on free market principles and an addiction to economic growth underpin the global economic crisis. How do we explain these causes - and does the renewed fixation with the policies of John Maynard Keynes offer an adequate solution? There is much discussion of short-term causes of the financial meltdown with a focus on credit derivatives, high-risk investments and excess deregulation. The use of complex terminology in highlighting short-term policy problems will inevitably mask the deeper crisis facing a global economic system based on the unbridled profit motive. So what next? In previous eras it has taken war, revolution or prolonged recession before political leaders established new institutional structures.
Rediscovering the virtues of Keynes is an indication of the gravity of the economic crisis. The free market strategy behind the Raegan/Thatcher revolution has been abandoned – we are now in a new world. However, Keynes was never able to translate his solutions from national level to international action. In the face of the current financial crisis, government after government has moved towards more Keynesian solutions to economic problems. It was responsible to boost spending with the aim of speeding up economic activity, even if borrowing had to increase to do so. John Maynard Keynes once said that "in the long run, we are all dead";
Today's economic circumstances do seem to fit a more Keynesian solution. Inflation is likely to stay low in the coming downturn, meaning that the upward pressure of increasing demand is likely to be manageable; and critics who say that public spending often takes too long to counter the economic problems they were instituted to solve can be answered with the point that this is likely to be a fairly long recession. In that environment, the government seems to have decided that the time is ripe for a Keynesian renaissance. Keynes's approach is most effective at times when inflationary pressures are not particularly high – like now. Keynes proposed that governments should systematically intervene in the economy by boosting the demand for goods and services – spending money on public works and cutting interest rates to make investment more attractive.
In the economic sphere, it is clear that the expansion over the past 15 years has produced a highly unstable situation—accelerated economic growth in some regions, albeit on unstable foundations, as in the case of China, coupled with far-reaching changes in the economic structure of the most advanced capitalist countries. The rise of American capitalism in the twentieth century was associated above all with the dominance of its manufacturing industry. By the end of the twentieth century, however, the finance, insurance and real estate (FIRE) sector comprised 20 percent of the US economy, compared to 14.5 percent for manufacturing. In his book American Theocracy, Kevin Phillips writes: “Financial-sector profits shot past those of manufacturing in the mid-1990s, thereafter moving farther ahead. By 2004 financial firms boasted nearly 40 percent of all US profits. The financial sector commanded a quarter of America’s stock market capitalization that year, up from just 6 percent in 1980 and 11 percent in 1990. Historically, this transformation is as momentous as the emergence of railroads, iron and steel and the displacement of agriculture during the decades after the Civil War” (Kevin Phillips, American Theocracy, Penguin, 2006, pp. 265-266).
The profits of finance capital do not so much involve a direct appropriation of surplus value as they are accumulated through changes in asset values—that is, by operations in financial markets. In a nutshell, the downturn in the rate of profit in the 1970s and the failure of profit rates to sufficiently recover in the 1980s. Following the decline in the earnings of commercial banks in the United States in the 1980s, regulations limiting banks to deposit-taking and short-term lending were relaxed to allow a wider range of capital market activities, in particular, the creation of affiliates not previously engaged in these activities. This system has produced a new set of bank operations now known as ‘originate and distribute,’ in which the banks seeks to maximize its fee and commission income from originating assets, managing those assets in off-balance-sheet affiliate structures, underwriting the primary distribution of securities collateralized with these assets and servicing them.
The financialisation of the American economy—a process which has been duplicated in other major capitalist countries—has been the central mechanism through which wealth has been transferred up the income scale. It has rested on low interest rates and the expansion of credit, which have fueled the growth of asset values and the accumulation of vast profits as a result of financial transactions. These low interest rates, in turn, have been made possible only by the deflationary impact of the integration of China and other low-cost producers into the world capitalist market.
Keynes's approach began to appear limited in relatively uncompetitive economies. A labour shortage and an excess of demand triggered stagflation – the combination of inflation with economic stagnation – and traditional Keynesian remedies seemed unable to control it.
Deep structural causes based on free market principles and an addiction to economic growth underpin the global economic crisis. How do we explain these causes - and does the renewed fixation with the policies of John Maynard Keynes offer an adequate solution? There is much discussion of short-term causes of the financial meltdown with a focus on credit derivatives, high-risk investments and excess deregulation. The use of complex terminology in highlighting short-term policy problems will inevitably mask the deeper crisis facing a global economic system based on the unbridled profit motive. So what next? In previous eras it has taken war, revolution or prolonged recession before political leaders established new institutional structures.
Rediscovering the virtues of Keynes is an indication of the gravity of the economic crisis. The free market strategy behind the Raegan/Thatcher revolution has been abandoned – we are now in a new world. However, Keynes was never able to translate his solutions from national level to international action. In the face of the current financial crisis, government after government has moved towards more Keynesian solutions to economic problems. It was responsible to boost spending with the aim of speeding up economic activity, even if borrowing had to increase to do so. John Maynard Keynes once said that "in the long run, we are all dead";
Today's economic circumstances do seem to fit a more Keynesian solution. Inflation is likely to stay low in the coming downturn, meaning that the upward pressure of increasing demand is likely to be manageable; and critics who say that public spending often takes too long to counter the economic problems they were instituted to solve can be answered with the point that this is likely to be a fairly long recession. In that environment, the government seems to have decided that the time is ripe for a Keynesian renaissance. Keynes's approach is most effective at times when inflationary pressures are not particularly high – like now. Keynes proposed that governments should systematically intervene in the economy by boosting the demand for goods and services – spending money on public works and cutting interest rates to make investment more attractive.
In the economic sphere, it is clear that the expansion over the past 15 years has produced a highly unstable situation—accelerated economic growth in some regions, albeit on unstable foundations, as in the case of China, coupled with far-reaching changes in the economic structure of the most advanced capitalist countries. The rise of American capitalism in the twentieth century was associated above all with the dominance of its manufacturing industry. By the end of the twentieth century, however, the finance, insurance and real estate (FIRE) sector comprised 20 percent of the US economy, compared to 14.5 percent for manufacturing. In his book American Theocracy, Kevin Phillips writes: “Financial-sector profits shot past those of manufacturing in the mid-1990s, thereafter moving farther ahead. By 2004 financial firms boasted nearly 40 percent of all US profits. The financial sector commanded a quarter of America’s stock market capitalization that year, up from just 6 percent in 1980 and 11 percent in 1990. Historically, this transformation is as momentous as the emergence of railroads, iron and steel and the displacement of agriculture during the decades after the Civil War” (Kevin Phillips, American Theocracy, Penguin, 2006, pp. 265-266).
The profits of finance capital do not so much involve a direct appropriation of surplus value as they are accumulated through changes in asset values—that is, by operations in financial markets. In a nutshell, the downturn in the rate of profit in the 1970s and the failure of profit rates to sufficiently recover in the 1980s. Following the decline in the earnings of commercial banks in the United States in the 1980s, regulations limiting banks to deposit-taking and short-term lending were relaxed to allow a wider range of capital market activities, in particular, the creation of affiliates not previously engaged in these activities. This system has produced a new set of bank operations now known as ‘originate and distribute,’ in which the banks seeks to maximize its fee and commission income from originating assets, managing those assets in off-balance-sheet affiliate structures, underwriting the primary distribution of securities collateralized with these assets and servicing them.
The financialisation of the American economy—a process which has been duplicated in other major capitalist countries—has been the central mechanism through which wealth has been transferred up the income scale. It has rested on low interest rates and the expansion of credit, which have fueled the growth of asset values and the accumulation of vast profits as a result of financial transactions. These low interest rates, in turn, have been made possible only by the deflationary impact of the integration of China and other low-cost producers into the world capitalist market.
Eventhough the financial crisis is global in nature, a careful balancing of Keynesian and neoclassical policies are necessary at the regional or natioanl level which should make sure more employment, income and demand generation on the one hand and higher production, investment and economic growth on the other. Here the 'India model' is unique.
The Chandrayaan mission, at a time of economic belt-tightening, has sparked a national debate about whether a country with hundreds of millions of poor people can afford to play catch-up in the skies. We have to consider the costs for a [manned] moon mission. Even with our low costs it will be billions of dollars. You need a good reason to send someone to the moon for that amount. Yes there is not only good but a sound and strong reasoning for moon mission in India. For achieving a faster rate of growth in the economy uninterrupted supply of energy is a must. As everybody knows, India is now an energy deficient country in terms of its urge for developing the economy into the status of a developed country. The Chandrayaan mission will help India economically. One of India's aims in reaching the moon is the possibility of harvesting helium 3, a key fuel for nuclear fusion. Although fusion is not commercially viable today, scientists say it one day will be, and that once it is a fuel supply will become a problem, as the Earth is believed to have only 15 tonnes of helium 3. The moon is thought to contain up to 5m tonnes. When we develop a technology, initially the cost may be higher. But eventually we can achieve cost effectiveness through the make use of that cutting edge technology. Madras Institute of Development Studies recently calculated that for every rupee spent on the space programme, two were generated in "indirect and direct returns". India is now in the elite club of few countries who has capability to launch satellites commercially. This capability will generate huge income for the economy in future.
