PB (G)

BACKGROUND

The theory of Keynesian Economics (sometimes referred to as Keynesianism) was conceived by a British economist named John Maynard Keynes in the early 20^th century. The theory’s main vessel into contemporary American economics was a book written by Keynes in 1936 titled The General Theory of Employment, Interest and Money. Its main idea is that when private sector businesses and industries make poor decisions that cause recession, the public sector government should intervene to correct the market. Keynes' theory proposes that the government does this by injecting money into the economy to protect private sector businesses which ultimately stimulates the economy out of recession. According to the International Encyclopedia of the Social Sciences, “In the General Theory Keynes argued that employment is determined by the aggregate demand for goods, which is in turn determined (in a closed economy) by consumption demand and investment demand” (“Economics, Keynesian”).

MAJOR APPLICATIONS IN AMERICAN HISTORY

The first time that Keynesian Economics was put to use was following the Great Depression. President Franklin Delano Roosevelt applied Keynes theory during World War II to help the US economy out of its economic turmoil (par 5). American presidents from FDR to Ronald Reagan used Keynesian Economics as their economic models to stimulate the American economy (Canova, Holt, Horn, Rosser Jr. and Rosser 500). For much of the period of time following World War II, many Western countries adopted Keynesianism as the model for their economies. In the 1980s, the US economy was again slipping in to recession when President Ronald Reagan introduced his own application of Keynesian Economics which he called “Reaganomics” (Niskanen par 1). Although it had some of Reagan’s own provisions, “Reaganomics” accelerated military spending by the government to boost the economy.

USE IN MODERN AMERICA

The age-old theory of Keynesian Economics continues to be applicable to the American economy in the modern era, even up to seventy years from its conception. There have been 15 instances where private sector corporations were given government dollars to boost the economy in the US since 1970 (Nankin, Umansky, Kjellman and Klein). In 2008 the US Senate and Congress under the Bush administration put together the Emergency Economic Stabilization Act. As a result, the government purchased nearly $700 billion of failing bank assets to help stabilize the economy. In mid-2009, the Obama administration approved a massive loan to American automakers to keep them in business. Allowing these automakers to fail would have been quite destructive to the US economy. The methods used to control these economic busts come directly from Keynesianism.

FUTURE USE

As we move forward into the future the economy seems uncertain. History has shown a trend of boom and bust in the economy that often was a result of (or resulted in) government spending to keep the economy stable. Although every specific situation in which the government was tapped by the private sector for financial help was not always successful, the application of John Keynes theory will continue to be a part of macroeconomics indefinitely.

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Works Cited

Canova, Timothy A., et al. “Keynesian Comparative Economics The Iconoclastic Vision of Lynn Turgeon.” The      American Journal of Economics and Sociology. Vol. 62, No. 3, (2003): 491-508. Web. 7 June 2011.

“Economics, Keynesian.” International Encyclopedia of Social Sciences. Encyclopedia.com. 2008. Web. 7 June 2011.   

Kjellman, Krista, et al. “History of U.S. Gov’t Bailouts.” Propublica.org. The Sandler Foundation, 1 Apr. 2009. Web. 7 June 2011.

Niskanen, William A., “Reaganomics.” The Concise Encyclopedia of Economics. 1993. Library of Economics and Liberty. Web. 7 June 2011.

TheGreatDepressionCauses.com. Croft Communications Inc, 2011. Web. 7 June 2011.