Keynesian economic thingy

[Talk Wrench]

Our esteemed forum contributor @Deltaitem has often mentioned Keynesian economics and to be honest, I'm familiar with the term but not familiar with the philosophy and meaningful practice of it.

So off I went on a Google-athon to find out the basics behind it and amongst other things, I found this statement.

For example, Keynesian economists would advocate raising taxes to cool the economy and prevent inflation when there is abundant demand-side growth.


As we are seeing, raising taxes isn't exactly working out at the moment when it comes to inflation so based on that, is Keynesian economics nothing more than fanciful theory given the above scenario assuming that we have "abundant side-growth"?

Or in plain English, is it just a load of bollo*ks ?

 

[muttywhitedog]

It really depends on who receives the money TW. I'll present you with two scenarios:

1. Keep tax rates the same for everyone except the uber rich and give them a cut that equates to £1m each a year. Cost to treasury is £5Bn. Those in receipt spend that money on growing the economy which filters down to the less well off in better employment prospects.

2. Cut tax for the poorest in society so they each receive £1000 each a year. Cost to treasury is £5Bn. Those in receipt spend that money on growing the economy which filters down to the less well off in better employment prospects.

Both noble ideas, but IMHO, No 1 is flawed, because the uber rich will spend what they need to spend regardless, so much of the £5Bn would be put in investments benefitting nobody but the individual. No 2 would see pretty much all the money being recycled through the economy as those at the bottom are choosing between heating and eating, and of course giving them £1k means there are many more spending than in scenario 1. This in turn would create bigger demand, and result in more jobs, which would result in less welfare payments and more tax revenue.

 

[Oldstacker]

It really depends on who receives the money TW. I'll present you with two scenarios:

1. Keep tax rates the same for everyone except the uber rich and give them a cut that equates to £1m each a year. Cost to treasury is £5Bn. Those in receipt spend that money on growing the economy which filters down to the less well off in better employment prospects.

2. Cut tax for the poorest in society so they each receive £1000 each a year. Cost to treasury is £5Bn. Those in receipt spend that money on growing the economy which filters down to the less well off in better employment prospects.

Both noble ideas, but IMHO, No 1 is flawed, because the uber rich will spend what they need to spend regardless, so much of the £5Bn would be put in investments benefitting nobody but the individual. No 2 would see pretty much all the money being recycled through the economy as those at the bottom are choosing between heating and eating, and of course giving them £1k means there are many more spending than in scenario 1. This in turn would create bigger demand, and result in more jobs, which would result in less welfare payments and more tax revenue.

The way in which the money is redistributed also has an impact. In MWDs scenario 2, if the tax cut is to income tax then only working people benefit directly whereas if the cut is to VAT then more people benefit if they can afford VATable goods and services. Giving everyone a £1k cheque benefits everyone. BUT each of those options also sees the money recycling in different ways as well.

Isn't there a quote about economic forecasters being put on earth to make astrologers look good?

 

[GD on Wheels]

“THE only function of economic forecasting is to make astrology look respectable,” John Kenneth Galbraith, an irreverent economist, once said. Since economic output represents the aggregated activity of billions of people, influenced by forces seen and unseen, it is a wonder forecasters ever get it right.9 Jan 2016

 

[busby1971]

If only life was so simple, Keynesian calming of the economy means taking that money out of the economy totally, if you just shift it around it is still there and inflation continues where ever that money lands.

Raise taxes, do not increase spending but pay down public debt and that money no longer exists, yes it still does but on paper not being washed around the economy. Less money in the economy and inflation should come down.

Sounds good, giving that £5b to the poor, however, that puts inflationary pressure on food and other basics, becoming a continuous vicious cycle.

The main driver for the current continuing inflation is all the COVID support spending and personal saving during the lockdowns, not just here but around the world, add to that the unfortunate timings of the Ukraine War. Inflation should start to drop this year, however it wont return to normal levels for a couple of years, unless of course something else comes along.

Then again you could just blame the Government and Brexit if that makes you happy.

 

[Deltaitem]

Our esteemed forum contributor @Deltaitem has often mentioned Keynesian economics and to be honest, I'm familiar with the term but not familiar with the philosophy and meaningful practice of it.

So off I went on a Google-athon to find out the basics behind it and amongst other things, I found this statement.

For example, Keynesian economists would advocate raising taxes to cool the economy and prevent inflation when there is abundant demand-side growth.


As we are seeing, raising taxes isn't exactly working out at the moment when it comes to inflation so based on that, is Keynesian economics nothing more than fanciful theory given the above scenario assuming that we have "abundant side-growth"?

Or in plain English, is it just a load of bollo*ks ?

I wasn't aware I'd mentioned it that much, but anyway...and at this point be careful what you wish for.
So, John Maynard Keynes, a British economist of huge importance and influence, who put forward his own economic theory, unsurprisingly called Keynesian economic theory, which was a dominant form of economic thought in many post war economies, including Britain.
As with all theories, we all take our own meaning from them, and so it is with Keynesianism. I was particularly drawn to his ideas on full employment as a concept. Essentially, he said this: if everyone has a job, everyone is earning money and has a disposable income to spend on the economy, thereby driving prosperity. In addition, if everyone has a job and is paying taxes, the government is getting a lot of money to be able to spend on the greater good, eg, not retiring the Hercs early, paying public servants properly, investing in infrastructure, etc. Also, if everyone has a job and is paying taxes, the government can afford a world class welfare support system, but there won't be many unemployed people, so the support system can be better spent on pensioners, social care etc. Of course, a theory is just that, much like a model, and never 100% survives reality, I guess, but I'd say it's a much better thing to aspire to than simply accepting high levels of unemployment and the social ills that comes with it.
Keynesianism was a dominant economic thought in the UK until it was discredited, but never disproved, by Thatcher. Given her love of long dole queues, you can understand why she didn't like it. The bitch.
Talk Wench mentions taxation being used to control inflation, and that seems to be an aspect of Keynesianism. However, she's wrong to say it's not working because there are comparatively high taxes in the UK and high inflation. Firstly, the tories are highly unlikely to adopt Kenyesian economic theory. Secondly, taxes aren't being raised to control inflation, they're being raised to pay the Covid bill. Third, inflation is being challenged in the UK with interest rates as opposed to taxes, so it's wrong to say that Kenyesian ecnomic theory isn't stopping UK inflation when Kenyensian economic theory isn't being applied to stop UK inflation.
Christ on a bike, isn't there anything better to talk about on a Friday night?