ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 19 B.

nor lower wages.The unpalatable outcome was massive retrenchment to cut cost and unemployment spiraled.The decline in economic growth was caused by decline in consumer demand and Nixon three attempts also backfired.First the Federal Reserve attempt to fight inflation tends to worsen it.The Fed.revised Federal fund rate and then jerked it down to combat recession.

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 19

balance of trade and protect domestic industries.Not only did he raise import prices,he removed United States from the gold standard,stopped backing the dollar with gold in 1971,which had once kept dollar value tiedto a fixed amount of gold as it were under the 1944 Bretton Woods agreement.Many countriesdecided their choices and were either pegged to the dollar or gold,making the dollar a global interventionist currency.This phenomenalfeat wrought by the man that was later haunted,chased out of office by watergate scandal could have baffled keynes,had he lived to witness this change of new global economic order.The problem started when the United Kingdom decided to redeem $3billion and the United States didnt have sufficient volume in her reserves at Fort Knox.Hence,Nixon stopped the practice of redeeming dollar with gold,skyrocketed the price of precious metals and dollar value plummeted.Import prices too grew and growth slowed even more when the United States companies couldnt raise prices to make a profit.

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 18

and April,1975 during the same year in which precisely by May unemployment stood at 9percent,just two months at the end of the recession.It was begun with mild recession in 1970 negative for 3 quarters and unemployment notched 6.1percent.And after he was reelected pledged to boost growth without inflation trigger.He was reelected because of an accessory of three different fiscal policies announced on August 15,1971.The announcement somehow sowed the seeds of later stagflation or popularly called Nixon shock,as declared during announcement.The 1973 oil embargo when OPEC cuts oil and placed embargo on the United States was blamed by the experts as the cause and many economists disagreed.Inflation grew exponentially as prices hit the roof,quadrupled and still wasn't sufficient ground to cause stagflation and it was a combination of fiscal and monetary policies that actively led to it.Besides 90day freeze on prices and wages,Nixon also imposed 10percent tariff on import with intention to lower balance of trade.

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 16

and high unemployment.It's quite unusual for such event to occur in a weak economy,given the fact that in a normal market economy,tardy growth often deters inflation.It happens in a climate driven by supply constraint when central bank,through the printing of govt currency expands money supply.It also occurs when monetary policy creates credit,growing money supply and inflation.The growth in taxes and rise in interest rate apparently slows growth and promote production decline.In this context when conflicting expansionary and contractionary policies collide,plumeting growth and creating high inflation and high unemployment is popularly known as stagflation.Economists boasted it would never happen again but Zimbabwe in 2004 experienced stagflation and later beyond switched to hyperinflation.The recession of 1973-75 or stagflation was characterised with 5 consecutive quarters of negative GDP.With trippled inflation of 3.4 percent to 9.6 percent in 1973 and stood at 10percent and 12 percent between February 1974

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 15

The Lyndon Johnson era of 1960s ended with demandpull inflation splurged on unchecked.The period of 1970s was not spared either of the phenomenal inflationforces of the succeeding period.Did Nixon like Johnson impose a tax increase or fear economic slowdown as a conservative to oppose increase in the role of government through taxation?However,he did attempt two options such as the restraint in the amount of money supply from the printing press and the 90day price and wage freeze.The first could not guarrantee optimal effect and as unemployment escalated,public protest grew.Subject to recommendation by some economists to use succesful wartime economic measure at peacetime to curb inflation that was never used before in peacetime,Nixon responded with the 9Oday freeze policy.It failed and people still didnt alter their inflation expectations.The stagflation era of 1970s challenged the fundamental orthodoxies of the preceding period.Stagflation had been defined as a combination of stagnant economic growth,high

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 14

on the fact that Kennedy's approach was largely keynesian economics characterised by massive tax cut that boosted heavily consumer spending and business activity skyrocketed.As new factories opened shops unemployment declined to the lowest margin.Dont forget booms barely died of old age were often murdered by the Fed. and this one too did not last too long when high demand grew unchecked to exert new inflationary pressure.President Lyndon Johnson'sWar on Poverty,boosted spending and better still Vietnam war skyrocketed agregate spending.Consequently by 1965,agregate demand ballooned by 8 percent perannum.With production stilllagging behind,shortages and inflation boomerang and inevitable with no direction to curb spending.He opposed tax increase and spending on Poverty war programs accelerated.But spending had been allowed togrow fartoo long unopposed and by60s or 1967,inflation waseverywhere.By 1968,hehad compromisedwith one year Surtax signed into law and too little to drive full saileconomy of the late60s.

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 13

we recall the civil right movement era of the 60s what did we learn from the recession of the period?There were two options that faced J.F.Kennedy when he took office in 1961 at a time economists agreed the country was recuperating from 1960 recession.Increase government spending on social programs or cut taxes and two prominent economists serving kennedy bickered for presidential attention.While a less prominent and new kennedy's economic adviser thought differently John Kenneth Galbraith wanted government spending to increase.Walter Heller with much pragmatic approach saw Kennedy was making little progress to get approval in the congress against the heavy lobbying from Galbraith.The President declined at first but the slump of 1962 made Heller's argument more convincing and vote swung in his favour.Across the board tax cut was favoured by the middle of 1962.Heller succeeded and prevented another recession as against longterm implication of Galbraith's choice of fiscal policy.Heller's perception was hinged

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 12

or council for economic development that initiated the concept of"stabilizing budget policy"purely indicating reliance on economy's built-in automatic stabilizers?The theory that stabilised tax rate for a sufficient period was allowed to change when gross national product equally declined and the people had less income to be taxed.Hence,this put more money into peoples'pocket and did not allow consumer spending to deeply decline and instead of deeper recession the economy,cushioned by stable consumer spending inched its way towards prosperity once again.By the summer of 1954 it was a great success and recession worries slowly ebbed.Some economists baffled were inspired to ask in their problem set:Why had these stabilizers worked so effectively well during Eisenhower period and not during the depresion era?The answer was simple public spending and government involvement had grown exponentially than the depression era.Many thanks to Keynesian world machine driving the American economy.Moreover,we recall the

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 11

The act required the formation of a group called council of economic advisers by the president and the main job was to enable the presidency to analyse and asses the economic climate,forecast the future and making tedious fiscal policy decision.It was charged with the responsibility of helping the president actualise the intent of the act:"to promote maximum employment,production and purchasing power".There was so much commitment to the act that guarrantees full employment through the fiscal policy,centralising all previous programs initiated to deal with employment problems.When korean war ended United States participation ended too and then stalled the economy that had no later growth in consumer demand.When Eisenhower was afflicted with the highest level of unemployment since the great depresion what did he do in the face offierce resistance and stronglyworded opposition and recommendation that besieged him?Did he support the traditionalists that favour tax increase or the council for economic development

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 10

In the same way,Milton Friedman doubted the capability of central bankers to effectively handle the monetary management,keynes admirers believedhe underestimated the capability of the American economy to produce and it did and burstonce again into wartime prosperity.Solving the 25 percent unemployment nightmare of the depression as inflation not unemployment constituted the fundamental economicproblem of that great economy by the 50s,60s and 70s period of stagflation when keynesian backfired.The political concept of using the expenditural and taxation or fiscal power to control national economics was begun during Rooseveltian times.Spending during the period was only 10 percent of total national output compared to 35% in the 90s to 2000.This keynesian approach a high level of spending might have empowered many americans to take control of their destinies at the same dependent on government.One of the practical aspects of implementing keynesian was the employment act of 1946,to test keynesian in real life.

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 9.

deeply sinking.It took a long time for his ideology to gain ground and discipleship,deeply guided the Rooseveltian New Deal.And despite the inconsistencies in the application of the New deal programs,it was well amplified to see the end of depression.Roosevelt though was politically often regarded as liberal and many economists would call him economic conservative and he was prokeynesian just like many of his economic advisers were great admirers of keynes.Marina Eccles the helmsman at the Federal Reserve during the period was another keynes'follower.Roosevelt himself distrusted the policy of lowering taxes and increasing government spending to basically solve depression logjam.However the government proceeded or moved forward with spending and when pulled back reflected the pendulum volatilities of applied policy inconsistencies so that slight progress alternated with declines in the early 1940s.The major turnaround was the wartime economy that badly needed production and supplies of weapons for the allies.

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all businesses compete equally.The complex nature of mordern economy seems to have defied the tenacity and pragmatism of this logic.Despite significant price and wages'changes over time,full employment not yet guarranteed,excluding the phenomenon of year 2000 when the United States experienced full employment equilibrium as the biggest peacetime historic expansion.I think for more than twenty years apart from 1980s'classicallike decrease in Reaganomics'marginal tax rates of the period,till 2000,no broadbased keynesian policy adopted.Obama era eclipsed this era and defied this logic to create25million jobs.Herbert Hoover's belief in depression era turnaround was considered naive byeconomists of the later period for his optimistic message of immanent prosperity was been based on discredited classical tradition as opposed to revolutionary total spending theory.The rocking boat metaphor was suitable only to classical tradition of a battered economy where rocking boat persist far too long and the boat was deeply

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 7

another theory of consumption and investment and warned both could go down indefinitely and that economy would not leap towards full employment.He pointed out once decline set in,investment decline would eventually leads to wages'decline and crash purchasing power of the workforce and of whom would be declining in size as the decline grows in momentum.With declining income,there is declining spending and declining fund to be ploughed back into business to drive investment.This self replicating cycle would spell economic disaster without government intervention.The classical model that held equilibrium guarrantees prosperity :high employment,low inflation made keynes thought otherwise,a foolproof of Hegellian dialectics that thrives intellectual history.And there was no assurance aggregate intended expenditure equals GDP with the intention to grow full employment.He also challenged as completely irrational,the classical economists'view about flexibility of wages and prices where they assume all bussinesses

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 6

of the economy.Keynes enthused differently tocritiquethem that a fall in investment spending automaticallywould not stimulate growth in consumerspending and could trigger a perenial decline.Infact,he argued both could go down permanently without intervention andcould operate once decline set inas a sort of self replicating phenomenon and to be so deplorable to crash total demand indefinitely.He challenged the classical economists'notion that without intervention such decline would repair itself automatically;a wild wild goose chase.He debunked the notion that supply creates its own demand and that the economy,was determined or dependent on keeping demand high,by all means,fair or foul.This demand side economics was truly revolutionary and was beyond the comprehension of orthodox economists in general and indeed frightening.To be believethat market economy would invariably move towards full employment heconsidered as insanity of economics.This was evidenced in the great depression of 1930s when he introduced

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 5

of flux with its variegated byproducts,intermitent rediscovery of new inventions continuously to shrug off old products now and then for innovative technology.These fluctuations are inevitable according to Schumpeter who maintained without with economy's stagnation is not negotiable and optimal growth impossible.John Maynard Keynes himself must have learnt about the american experience during the first world war and thereafter was a great student of history.His view was not only controversial and disarmingly different but breathtaking total departure from mainstream orthodoxiesof the period.The disciples of J.B.Says basically held to the viewpoint that consumers tend to spend their income in two ways:either consume it on products andservices,or lend it for use in businesses,that would in turn maximise its value and expand.They assume in balance if consumption demand goes up,investment demand goes down and viceversa.This in either way,would keep total demand high up and then ensures general prosperity of the

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 4

first to discover how good time influences bad time and bad time influences good time,a self generated business cycle that became popular thereafter.He warned if care was not taken,the capitalist would not be able extract itself from bad time and that the crash was inevitable.American capitalism paid dearly for productivity to be regained,had to fight two world wars to generate increased productivity,and Marx indeed was a prophet.While David Ricardo and Thomas Malthus,had prophesied a limit to economic growth,Marx and Joseph Schumpeter struck and overwhelmed by the boom and burst cycles of economics,almost towed the same line but Schumpeter eventually totally disagreed.Schumpeter invariably banked his prospect on the boom side of business cycle,contrary to the former's belief on the burst.Schumpeter gazed at the boom side and called it"Regeneration"and was fond of the dynamic nature of capitalism where the boom and burst cycle could be likened to a system undergoing continual metamorphosis,often in a state...

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 3

and supplies grew,unemployment sharply declined.Was it not surprising when in just a year and a half later say 1918 to 1919,the returning soldiers entirely found a different situation?That factories closed down,unionism and support for the unions shrank to zero,unemployment rose again back to its natural state because production crashed,and products and supplies barely demanded,poverty equally rose and labour strikes rampant,all because the war ended.Turmoil grew and given negative outcome of the dramatic change of event, nurtured by business cycle,there was attendant loss of faith in the capitalist system.During the same period,Marx exponential surge of ideas,gladdened the heart of the proletariat who felt he was speaking directly to them.He glorified the workers who according to him were not appreciated, repressed and heavily exploited by the capitalist machine,yet it was the worker that produced goods and services and value based products that made the economy thick.Before anybody else ever did,he was the

ECLECTICS:WHAT DID WE LEARN FROM KEYNES?PART 2

the selfmaintenance powers of the system and the notion of continuous spending either by purchase of goods and services or by investment will stimulate long run production.The economy of the 19th century was startlingly much more resilient than the saturated epoch of today,specifically its capacity to recover from potential challenges prior to its swing into another direction.The american economy experienced severe decline in early 20th century,preceding World war 1 when investment declined like production,in the face of ballooned unemployment.The prejudice that government intervention and the notion that tampering with the free market mechanism would make things worse blanketed the viewpoints of Americans like a chilling fog.When in 1914,they began to support war effort with production,jobs proliferated everywhere including agroallied surplus and food production.Infact,by the time Americans as world citizens,with armed services entered the war in 1917,and catapulted the military production of weapons and....