tradeunionsupporter
18th May 2012, 01:29
I prefer Keynesian Economics over Trickle Down Economics but can anyone explain Keynesian Economics's views of how to promote economic growth in the private sector I know Keynesian Economics supports Government Spending but Government Spending on what ? Public Works Projects ? Infrastructure Spending ? I know this is not a Keynesian forum but Keynesian Economics should work better then Trickle Down Economics in my view. Doesn't Keynesian Economics support Consumer Spending to help the Economy ? I hear Keynesians say we need Government Spending to put money in the pockets of the people who then will spend the money this they say will help promote Consumer Spending which will help create Jobs how do Keynesians plan to pocket money in people's pockets is it by giving the people Jobs rebuiliding or building Infrastructure ?
John Maynard Keynes
The General Theory of Employment, Interest and Money
Book III
The Propensity to Consume
Chapter 10. The Marginal Propensity to Consume and the Multiplier
V
We have seen above that the greater the marginal propensity to consume, the greater the multiplier, and hence the greater the disturbance to employment corresponding to a given change in investment. This might seem to lead to the paradoxical conclusion that a poor community in which saving is a very small proportion of income will be more subject to violent fluctuations than a wealthy community where saving is a larger proportion of income and the multiplier consequently smaller.
This conclusion, however, would overlook the distinction between the effects of the marginal propensity to consume and those of the average propensity to consume. For whilst a high marginal propensity to consume involves a larger proportionate effect from given percentage change in investment, the absolute effect will, nevertheless, be small if the average propensity to consume is also high. This may be illustrated as follows by a numerical example.
Let us suppose that a community’s propensity to consume is such that, so long as its real income does not exceed the output from employing 5,000,000 men on its existing capital equipment, it consumes the whole of its income; that of the output of the next 100,000 additional men employed it consumes 99 per cent., of the next 100,000 after that 98 per cent., of the third 100,000 97 per cent. and so on; and that 10,000,000 men employed represents full employment. It follows from this that, when 5,000,000 + n x 100,000 men are employed, the multiplier at the margin is 100/n, and n(n + 1)/2.(50 + n) per cent. of the national income is invested.
http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch10.htm
Infrastructure Spending Builds American Jobs
Public Investments Help Private Businesses Create Jobs
By Kristina Costa (http://www.americanprogress.org/aboutus/staff/CostaKristina.html), Adam Hersh (http://www.americanprogress.org/experts/HershAdam.html) | September 8, 2011
Jobs induced by direct and indirect hires when they make consumer purchases with their paychecks
http://www.americanprogress.org/issues/2011/09/jobs_infrastructure.html
Infrastructure Spending Stimulates the Entire Economy
Pat O'Malley (http://contributor.yahoo.com/user/933068/pat_omalley.html), Yahoo! Contributor Network (https://contributor.yahoo.com/)
Jun 29, 2011 "Share your voice on Yahoo! websites. Start Here (https://contributor.yahoo.com/join/voicesarticlebyline)."
The Keynesian economic theory is one of the few classic economic principles that is based in reality. It maintains that government should increase spending during a recession. It should buy more of the things that government normally buys.
Those things are new and repaired roads, bridges, dams, harbors, levees, tunnels, buildings, schools, parking garages, subways, railways, parks, sewers, stadiums, airports, and other public facilities. That spending creates jobs for construction companies and workers. Those projects create demand for the supplies, equipment, tools, and other materials that they need for those projects. It creates demand for the trucking companies to ship them and the warehouses to store them. That creates jobs in all of those industries. If the companies supplying the construction industry have enough work, they can spend some of their revenue to hire more employees or to upgrade their own facilities. See, more demand, more jobs.
Then all of those workers have paychecks that they can spend on groceries, clothing, furniture, cars, houses, utilities, entertainment, appliances, restaurants, vacations, and all sorts of things. That creates demand in those industries. And that creates jobs. If those companies have enough work, they can spend some of their revenue to hire more employees or to upgrade their own facilities. See, more demand, more jobs. And government gets its new stuff built and its old stuff fixed. See. Everybody wins.
http://voices.yahoo.com/infrastructure-spending-stimulates-8723969.html?cat=55
the end of the 80s, it had become clear that the rich were not investing their liberated tax dollars on "good" forms of investment, like jobs and productive tools and technology. Instead, the money went towards consumption, the good life, and economically meaningless investments like antiques and sport cars. The lack of investment in the national interest became so obvious that Democrats in congress actually proposed guidelines to encourage it. During the 1992 campaign, Bill Clinton proposed a massive infusion of public investment into the nation's aging infrastructure to compensate for the failure of the private sector to do so.
http://www.huppi.com/kangaroo/L-capgainsspur.htm
To get the circular flow of money started again, Keynes suggested that the central bank -- in the U.S., the Federal Reserve System -- should expand the money supply. This would put more money in people's hands, inspire consumer confidence, and compel them to start spending again.
http://www.huppi.com/kangaroo/Causes.htm#keynesianism
The cure for this, Keynes said, was for the central bank to expand the money supply. By putting more bills in people's hands, consumer confidence would return, people would spend, and the circular flow of money would be reestablished. Just that simple! Too simple, in fact, for the policy-makers of that time.
http://www.huppi.com/kangaroo/Keynesianism.htm
What is Trickle Down Economics?
The major problem with this economic theory (http://www.wisegeek.com/what-is-economic-theory.htm) is that it doesn't work as effectively as its proponents suggest. A few economists may still cling to the trickle down economics theory, but many more agree that, in fact, trickle down economics hurts the lower classes, and it hurts the government.
By reducing the tax burden for the wealthiest individual, the government cheats itself out of a very profitable wedge of tax revenue (http://www.wisegeek.com/what-is-tax-revenue.htm), meaning that this revenue cannot be invested directly in the citizens of the nation. Without that revenue, the government may go into debt to pay for basic services, thereby creating a serious problem for future generations.
The issue with trickle down economics is that it relies on actions by individuals which will benefit a whole, and most individuals are not that altruistic. In fact, many wealthy individuals and corporations are understandably interested in protecting their wealth, and when their taxes are cut, they may choose not to reinvest that money, meaning that no funds “trickle down” to people in lower socioeconomic classes. The tax burden on the middle class may also increase as the government struggles to keep tax revenues high enough to fund itself.
Trickle down economics tends to be promoted by conservative politicians who would like to see less government. However, moderates and conservatives have suggested that theories like trickle down economics are ultimately a disservice to the government and the citizens.
By collecting reasonable tax revenues, a government can provide the benefits which are supposedly offered by trickle down economics, as demonstrated under politicians like President Roosevelt, who invested heavily in American infrastructure with government funds in the 1930s to foster recovery from the Great Depression (http://www.wisegeek.com/what-is-the-great-depression.htm).
http://www.wisegeek.com/what-is-trickle-down-economics.htm
John Maynard Keynes
The General Theory of Employment, Interest and Money
Book III
The Propensity to Consume
Chapter 10. The Marginal Propensity to Consume and the Multiplier
V
We have seen above that the greater the marginal propensity to consume, the greater the multiplier, and hence the greater the disturbance to employment corresponding to a given change in investment. This might seem to lead to the paradoxical conclusion that a poor community in which saving is a very small proportion of income will be more subject to violent fluctuations than a wealthy community where saving is a larger proportion of income and the multiplier consequently smaller.
This conclusion, however, would overlook the distinction between the effects of the marginal propensity to consume and those of the average propensity to consume. For whilst a high marginal propensity to consume involves a larger proportionate effect from given percentage change in investment, the absolute effect will, nevertheless, be small if the average propensity to consume is also high. This may be illustrated as follows by a numerical example.
Let us suppose that a community’s propensity to consume is such that, so long as its real income does not exceed the output from employing 5,000,000 men on its existing capital equipment, it consumes the whole of its income; that of the output of the next 100,000 additional men employed it consumes 99 per cent., of the next 100,000 after that 98 per cent., of the third 100,000 97 per cent. and so on; and that 10,000,000 men employed represents full employment. It follows from this that, when 5,000,000 + n x 100,000 men are employed, the multiplier at the margin is 100/n, and n(n + 1)/2.(50 + n) per cent. of the national income is invested.
http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch10.htm
Infrastructure Spending Builds American Jobs
Public Investments Help Private Businesses Create Jobs
By Kristina Costa (http://www.americanprogress.org/aboutus/staff/CostaKristina.html), Adam Hersh (http://www.americanprogress.org/experts/HershAdam.html) | September 8, 2011
Jobs induced by direct and indirect hires when they make consumer purchases with their paychecks
http://www.americanprogress.org/issues/2011/09/jobs_infrastructure.html
Infrastructure Spending Stimulates the Entire Economy
Pat O'Malley (http://contributor.yahoo.com/user/933068/pat_omalley.html), Yahoo! Contributor Network (https://contributor.yahoo.com/)
Jun 29, 2011 "Share your voice on Yahoo! websites. Start Here (https://contributor.yahoo.com/join/voicesarticlebyline)."
The Keynesian economic theory is one of the few classic economic principles that is based in reality. It maintains that government should increase spending during a recession. It should buy more of the things that government normally buys.
Those things are new and repaired roads, bridges, dams, harbors, levees, tunnels, buildings, schools, parking garages, subways, railways, parks, sewers, stadiums, airports, and other public facilities. That spending creates jobs for construction companies and workers. Those projects create demand for the supplies, equipment, tools, and other materials that they need for those projects. It creates demand for the trucking companies to ship them and the warehouses to store them. That creates jobs in all of those industries. If the companies supplying the construction industry have enough work, they can spend some of their revenue to hire more employees or to upgrade their own facilities. See, more demand, more jobs.
Then all of those workers have paychecks that they can spend on groceries, clothing, furniture, cars, houses, utilities, entertainment, appliances, restaurants, vacations, and all sorts of things. That creates demand in those industries. And that creates jobs. If those companies have enough work, they can spend some of their revenue to hire more employees or to upgrade their own facilities. See, more demand, more jobs. And government gets its new stuff built and its old stuff fixed. See. Everybody wins.
http://voices.yahoo.com/infrastructure-spending-stimulates-8723969.html?cat=55
the end of the 80s, it had become clear that the rich were not investing their liberated tax dollars on "good" forms of investment, like jobs and productive tools and technology. Instead, the money went towards consumption, the good life, and economically meaningless investments like antiques and sport cars. The lack of investment in the national interest became so obvious that Democrats in congress actually proposed guidelines to encourage it. During the 1992 campaign, Bill Clinton proposed a massive infusion of public investment into the nation's aging infrastructure to compensate for the failure of the private sector to do so.
http://www.huppi.com/kangaroo/L-capgainsspur.htm
To get the circular flow of money started again, Keynes suggested that the central bank -- in the U.S., the Federal Reserve System -- should expand the money supply. This would put more money in people's hands, inspire consumer confidence, and compel them to start spending again.
http://www.huppi.com/kangaroo/Causes.htm#keynesianism
The cure for this, Keynes said, was for the central bank to expand the money supply. By putting more bills in people's hands, consumer confidence would return, people would spend, and the circular flow of money would be reestablished. Just that simple! Too simple, in fact, for the policy-makers of that time.
http://www.huppi.com/kangaroo/Keynesianism.htm
What is Trickle Down Economics?
The major problem with this economic theory (http://www.wisegeek.com/what-is-economic-theory.htm) is that it doesn't work as effectively as its proponents suggest. A few economists may still cling to the trickle down economics theory, but many more agree that, in fact, trickle down economics hurts the lower classes, and it hurts the government.
By reducing the tax burden for the wealthiest individual, the government cheats itself out of a very profitable wedge of tax revenue (http://www.wisegeek.com/what-is-tax-revenue.htm), meaning that this revenue cannot be invested directly in the citizens of the nation. Without that revenue, the government may go into debt to pay for basic services, thereby creating a serious problem for future generations.
The issue with trickle down economics is that it relies on actions by individuals which will benefit a whole, and most individuals are not that altruistic. In fact, many wealthy individuals and corporations are understandably interested in protecting their wealth, and when their taxes are cut, they may choose not to reinvest that money, meaning that no funds “trickle down” to people in lower socioeconomic classes. The tax burden on the middle class may also increase as the government struggles to keep tax revenues high enough to fund itself.
Trickle down economics tends to be promoted by conservative politicians who would like to see less government. However, moderates and conservatives have suggested that theories like trickle down economics are ultimately a disservice to the government and the citizens.
By collecting reasonable tax revenues, a government can provide the benefits which are supposedly offered by trickle down economics, as demonstrated under politicians like President Roosevelt, who invested heavily in American infrastructure with government funds in the 1930s to foster recovery from the Great Depression (http://www.wisegeek.com/what-is-the-great-depression.htm).
http://www.wisegeek.com/what-is-trickle-down-economics.htm