Friday, April 8, 2011

Describe Keynesian economic policies. How important were they to the New Deal?

The term of Keynesian economics has its origins in the theories advocated by the visionary British economist John Maynard Keynes. Known as the father of modern economics, Keynes’ idea for recession was that the central bank should expand the money supplies, regaining people’s confidence in spending and regenerating the money flow, curing the recession. As far as depressions were concerned, Keynes considered them to be recessions fallen into a liquidity trap - people refusing to spend money despite the expansion of the money supply by the central bank. In such situations Keynes advised the central bank to spend.

President Roosevelt initially dismissed Keynes’ ideas for curing the economy. However, in order to restore the vitality of the New Deal by bringing the economy back on course, the President introduced a spending program. Despite the Congress’ cuts on the WPA’s budget, the President reversed the course of the recession by increasing the WPA funds and resuming public works projects, driving the country out of the recession.

Henretta, James A, and David Brody. “America: A Concise History, Volume II: Since 1877.” 4th ed., Boston: Bedford/ St. Martin’s, 2010, 714.

King, John Edward. A history of post Keynesian economics since 1936. Cheltenham, UK: Edgar Elgar Publishing, 2002.

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