21 Oct 2009

Sample Essay: Philosophy

To set the ball rolling , it is a fact that no American can ever ignore, that  the economy of the United States has been moving to lower levels as days go by, every effort has therefore been employed by the relevant administrative bodies in order to help revive the otherwise sinking economy.

When the Current President, Mr. Obama was taking over power, among some of his greatest duties was about the financial or rather economic level of the United States. In a bid to achieve this, he injected several policies into his government among them being the Keynesian policy. This policy involves the government inducing job creation and also cutting down on the tax for the middle class individuals and rising tax for the upper income groups. Americans have so much concern about this harboring mixed feeling with respect to the same so that no one owns any surety as to whether the newly signed Obama’s Stimulus Package is going to be of any help to the nation. Some bodies and also individuals have risen to oppose the step citing that it is a wrong headed approach and also that it may not work. The discussion that is yet to be put down below will be comparing the opinions of different bodies or individual with respect to the matter in question. It is basically a debate between Keynesianism and the Chicago school within which there are individual who have aired their opinion about the government’s step.

The bigwig behind the philosophy of Keynesianism is John Maynard Keynes. He is considered the most undisputable and influential western Economist of the twentieth century. He has always in all his works laid a very strong emphasis on the nature and role of uncertainty in economic thought and this in actual sense makes the main theme in his writings.

The particular book which contains the information we would use to set the debate brings together a wide array of experts such as Gay Tulip Meeks, Sheila Dow, Karl Polanyi, John Kenneth Balbraith and John Davis. All these individuals analyze and criticize such themes as Keynesian probability and uncertainty, the foundations of Keynes’s economics and the relationship between Keynes’s earlier and later thought. The book though is readable, and comprehensive.

In his theory, he argues that full employment cannot be sustained through capitalism without any specific and productive intervention of the government with the inequitable distribution of wealth and income being its other failing. The theory also shows opposition to the classical story that the decision to save more lowered the rate of interest thereby making ore investment projects profitable.

The theory played an important role in giving a social function to the kind of people who Keynes referred top as rentiers, who owned most of the assets in the capitalist economy, such assets were only possible because the rentiers were willing to defer consumption of their wealth. The philosophy is also about the money blanket, a situation where the entrepreneurs made their decisions concerning investment. These decisions are made after comparing the marginal inefficiencies of capital across a range of projects with the money rate of interest, according to the policy; all projects which had their marginal inefficiencies below the standardized rate were not attempted. Within his policy, Keynes therefore suggested an alternative step to be taken; he employed pervasive uncertainty which was a fact of capitalist life Wealth holders valued money which was referred to as a security blanket which allowed deferment of decisions as to where to put wealth. The interest rate was a consequence of the equilibrium between the supply of money and its demand for these speculative purposes, the information is found between the sections (196-199) of the material on his philosophy.

A major determinant of the marginal inefficiencies was future sales expected by entrepreneurs based on the present sales, it was applied thus, a fall in the marginal sales could thereby depress the MEC and in turn cause cumulative falls n investment and consumption, through such standards and tests, the picture of a highly volatile and demand-deficient economy was portrayed. With such obvious results, it is therefore possible to make the right intervention in order to revive the economy because the discovery that the demand for most of the products is low the right entrepreneurial measures can be taken for in stance, advertisement in order to fuel the demand for the products. A successful exposure of the products would lead to increased sales which also would do great good to the economic level of the nation.

One of the implications though is that the growth of capital and hence investment and employment is held back by a low propensity to consume this can be further described as thriftiness.

Out of all these we can now bring out the proper outline of what the theory or policy is all about, Keynesianism is a macroeconomic theory whi9ch is mainly based on the ideas of the twentieth century. The theory argues that some of the decisions made by the private sector sometimes lead to inefficient macroeconomic outcomes and in such a case advocates for policy responses by the public sector which also includes monetary policy actions by the central bank  and fiscal  policy actions by the government and this would help in the stabilization of the output over the business cycle, this serves as one of the merits that might have led to the implementation of this theory in the current government to help recover the drowning economy. In this theory, some micro-level actions of individuals and firms can lead to aggregate macroeconomic outcomes in which the economy operates below the potential of its output and growth. While other economists believed in Say’s law that supply creates its own demand, Keynes on the other hand asserted in his theory that aggregate demand for goods might be insufficient during economic downturns and this in return lead to high rate of unemployment and losses of potential output, he therefore argues that the government could employ the use of policies in order to increase aggregate demand thus increasing economic activity and reducing unemployment and deflation. Keynes argued that the solution to depression was to stimulate the economy, or induce people to invest following two approaches, reduction in interest rates and government investment in infrastructure. This also has got a notable advantage in that the investment by the government injects income which leads to more spending in the general economy which in turn stimulates more production hence more income. The total increase in the economic activity will also increase the confidence in investment.

A central conclusion of Keynesian economics of precisely Keynesianism is that in some cases, no strong automatic mechanism moves output and employment towards full employment levels.

This conclusion though conflicts with the economic approaches that assume a general tendency towards an equilibrium in the neoclassical synthesis which combines the theory discussed above and its concepts with a micro foundation, the conditions of general equilibrium allow for price adjustments to achieve this goal. It is due to the fact that certain concepts of the theory conflict the general business trends that there arose the parties that criticized.

The following are some of the contrasting view that other economists gave with respect to the theory discussed above. Most of the critiques were from the other prominent writers and economist who had a strong connection in one way or the other to the Chicago school, one of the most dominant of the critics being Friedman Milton. Although starting from a theoretical base featuring strong Keynesian roots, Friedman devised a policy frame work that turned Keynes on his head. With the deliberate guidance of the financial market expectations featuring as one key innovation in his practical thought, Friedman developed a counter scheme that reduces monetary policy to a pure auto-pilot regime leaving no independence to the central bank that is supposed to be neutralized in this way this is contrary to the concepts that are in the theory of economics.

Out of the changes made by Friedman, a new approach to the monetary policy has been devised which has gradually brought modern monetary theory back into the real world. Still in a bid  to bring out the true contrast between Keynesianism and the ricardian thought, more specifically due to the in put of competent economist like Milton the following comes out, Instead of rejecting macro-measurements and macro-models of the economy, the monetarist school embraced the techniques of treating the entire economy as having a supply and demand equilibrium. However, because the Fischer Equation of Exchange, they regarded inflation as solely being due to the variations in the money supply, rather than as being a consequence of aggregate demand. They argued that the “crowding out” effects discussed above would hobble or deprive fiscal policy of its positive effect. Instead, the focus should be on monetary policy which was largely ignored by early Keynesians hence raising the controversy.

Another influential school of thought was based on the Lucas critique of Keynesian economics. This called for greater consistency with microeconomic theory and rationality, and particularly emphasized the idea of rational expectations Lucas and others argued that Keynesian economics required remarkably foolish and short-sighted behavior from people, which totally contradicted the economic understanding of their behavior at a micro level. New classical economics introduced a set of macroeconomic theories which were based on optimizing microeconomic behavior, for instance real business cycles.

Keynesian ideas wee also criticized by the Australian economist and philosopher, Friedrich Hayek. Hayek criticized Keynesian economic policies for what he called their fundamentally collectivist approach, arguing that such theories, no matter their presumptively utilitarian intentions, require centralized planning, which Hayek argued leads to totalitarian abuses. Keynes seems to have noted this concern, since, in the foreword to the German version of the ‘The General Theory of Employment Interest and Money’, he declared that “the theory of aggregated production, which is the point of ‘The General Theory of Employment Interest and Money, nevertheless can be much easier adapted to the conditions of a totalitarian state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire.

Another criticism leveled by Hayek against Keynes was that the study of the economy by the relations between aggregates is fallacious, and that recessions are caused by micro-economic factors. Hayek claimed that what starts as temporary governmental fixes usually become permanent and expanding government programs, which stifle the private sector and civil society. Keynes himself described the critique as “deeply moving”, which was quoted on the cover of the Road to Serfdom.

In conclusion, most of the merits and demerits of the economic steps discussed above have been placed within the various consequences but  one very obvious advantage that would come with the implementation of the policy is that the government is given room to deal with economic problems facing the United State  on more direct grounds rather than going through the long process of using the business markets because in such protocols, more damage would have been realized by that tome a solution will have been  attained. The current administrative policies would also help in increase production, creating more job opportunities for the citizens, increasing their income and subsequently improving their standards of living. This brings about the confidence in investment which in turn in creases the economic activity. On the other hand the policies put forward by the government may still not be efficient enough in combating the high rate of unemployment which still remains a big bother, unemployment also leads to poverty and other filthy vices in the society which sweeps away the security of the citizens.

Nationalization of the banks would at the same time fix the members of the public to specific modes of transaction and business activity under specific economic rules binding them to  particular  levels, this gives no room for expansion and flexibility, can discourage investment and ultimately, it can lead to the reduction in the economic level the United States Of America.

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