Question

What do you understand by the term ‘Keynesianism’? What are the key differences between Keynesian-liberalism and neo-liberalism?

Answer 1

KEYNESIANISM : The economic theory relating to the ideas of John maynard keynes, who believed that, in a recession, the economy can be grow and unemployment reduced by increasing government spending and reduction in interest rates. Optimum economic performance can be achieved by influencing aggregate demand through government fiscal policy and not through the free market philosophy.

Key differences between Keynesian-lberalism and neo-liberalism:

KEYNESIAN-LIBERALISM: It is related to Pro-labor (implies that it favors labor). Political economic movement that began following the global depression of 1930's and world war II and ended in late 1970's. Ptimary aim/goal of keynesian liberalism is to stimulate economic growth by ensuring full-employment. This theory believes that if people have money and jobs they will buy the goods they need and the economy will grow. Full employment can be achieved through government intervention in the economy. [The government limits the free movement of money and created public sector jobs to create employment.]

NEO-LIBERALISM: It is related to pro-business (implies that favours the business ). Political economic movement that began in 1980's. Primary goal of neo-liberalism is to improve societal well-being by encouraging economic competition between individuals(companies). The role of the government is not to ensure full employment. Intead the government should ensure that markets function smoothly with a minimum of distortion. It is believed that government is inefficient . Neo-liberalism belives in production side growth. This means instead of economic growth coming ffrom fully employed labor force , growth comes from corporate profits. Rich make more money, which they invest in new industries, which provide new jobs and everyone is better-off. (TRICKLE-DOWN EFFECT).