Keynesians and Marxians Keynesians vs  Thesis
- Length: 10 pages
- Sources: 8
- Subject: Economics
- Type: Thesis
- Paper: #92263888
Excerpt from Thesis :
There are many potential actions that could have been taken to help prevent the closing of GM and the job losses, plant closings, and economic catastrophe that is likely to occur as the once unstoppable giant collapses (Wolff, 2009).
The UAW won above subsistence level wages for GM employees, which should have theoretically had the same effect as an economic stimulus in the traditional Keynesian sense. However, rather than being rewarded with increased demand, GM workers found themselves displaced when the company decided to move production to countries where the workers did not attempt to cut into company profits by demanding fair wages. The company profited and these changes had little affect on demand. The world still demanded GM cars, regardless of where they were produced.
The impact of displaced workers should have created the affect of decreased demand according to both Keynesian and Marxian economics. However, when one takes a global perspective, it had little aggregate affect. The move did have an impact on the American economy, and an even greater affect on the communities where former GM plants were located, but these affects were only local. From the Marxian and Keynesian perspective, moving GM plants had little affect on the overall global macroeconomy.
This example demonstrates that the emergence of the global economy has had an equalizing effect on shocks to the economy of one particular nation. Keynesian and Marxian economic theories were more easily applied to national economies. The effects on national economies were more easily measured than the aggregate affect of these actions on the global economy. While displaced GM workers in the U.S. were big losers, unemployed workers in China, Brazil, and India benefited from the movement of GM. Now, we must measure the affects of a move on the global economy, rather than the impact on a single country. The new macroeconomy takes a more global perspective than the old model of macro and micro economies.
Marxian and Keynesian economics work best when they are applied in a vacuum. The new economy is filled with an almost endless multitude of substitutions. The market is filled with imitation products, often produced in once third world countries. There is also readily available substitute labor, often at a lower cost than local labor. The cost of moving a company overseas is often relatively cheap, when one considers the differences in labor costs. American workers cannot longer consider themselves an irreplaceable commodity. They can be replaced for the right price. The ability to readily replace workers with those that would work at a lower price is something that neither Keynes, nor Marx considered a possibility.
President Obama's abandonment of government intervention in the capital markets represents an abandonment of the principles upon which they were founded.
One of the most difficult aspects of Marxian and Keynesian economics is demonstrating that the theoretical predictions correlate to real-world affect. Supporters of both theories claimed for many years that correlations existed proving that their theory was valid. However, more recent studies have demonstrated that correlations are spurious and that they lose their predictive nature on these grounds (Kliman, 2008).
Direct foreign investment further complicates a Keynesian approach to the economy. Many countries are now choosing to grow with foreign savings. This scenario is a true test of the applicability of Keynesian economics to the current economic situation. Medium-income countries are capital poor and it is expected that account deficits due to foreign savings will increase consumption rather than the rate of capital accumulation and aggregate demand (Bresser-Pereira & Gala, 2008). This creates a scenario where the country must accumulate debt in order to consumer. Investment will not create growth in the country's own economy, but it will increase growth in the economy of a different country (Bresser-Pereira & Gala, 2008). A Keynesian approach would attempt to control this scenario by manipulating exchange rates to promote domestic investment and growth. However, when the players consist of countries with differing opinions.
Literature gives a strong indication that new models are being developed and that new methods of teaching them are emerging in academic circles (Harvey, 1007). Post Keynesian models and methods utilize many elements of the Keynesian model, but they have eliminated concepts such as a tendency towards full employment or balanced trade (Harvey, 2007). The perfect world or market equilibrium has been largely abandoned for a more realistic approach to the market and human reactions to it. Keynesian theory is not disappearing completely and it is still being taught as the theoretical basis for macroeconomics, but in actual practice, it is being replaced by a more realistic approach that places a greater emphasis on uncertainty and risk.
The current situation in the U.S. housing market is an excellent example of the failure of Keynesian policies and intervention. The Keynesian approach to the current housing slump approaches the problem from the standpoint that a national housing market exists and that adjusting the prime rate will an aggregate affect on the housing market as a whole. However, research has demonstrated that the housing market is highly segmented and that a different approach needs to be taken in modeling the housing market (Arestis & Karakitsos, 2008).
This is especially the case when one considers the impact of the sub-prime market on the overall housing market. Increasing numbers of foreclosures have increased the supply, which at the current time is outpacing demand. The slump in the U.S. housing market can be compared to the boom in the Spanish housing market of the early 2000s. Housing demand was the key driver of the boom, triggered by population growth, employment and an increase in per capita income (Esteban & Altuzarra, 2008). This is a key example that demonstrates that basic theoretical model proposed by Keynes still applies on a most basic level.
Keynesians have been the subject of heavy criticism in recent years. These criticisms have led to the development of many new economic models including post-Keynesian, neo-Keynesian, and other progressive reform movements. Keynesian theory still remains an essential part of these new theories, but it is recognized that the original theories had several failures. The effects of old Keynesian policy were difficult to quantify.
When one considers the theories of Keynes along side those of Marx, they are opposites in terms of the promotion of the redistribution of wealth to the workers. Keynes was largely concerned with large-scale unemployment and economic stagnation. Marx concerned himself more with increasing productivity, value and the accumulation of capital. These two theorists placed their key focus on different aspects of the economy. Keyne's theories were considered a radical alternative to those of Marx.
Keynes and Marx developed their theories by observing the world around them. The world has changed from the one in which they lived. Technology and the ability for a greater number of companies to enter into the global economy has changed the dynamics that were in place during their time. That is not to say that their theories should be discarded entirely. The theories of Keynes are more applicable than those of Marx in the current economic conditions. However, we will continue to turn to Marx for the development of econometric models.
Keynesian and Marxian economics models were developed with a single nation in mind. The influences of globalization and foreign investment change the dynamics of national economies. The new macroeconomy is on a global level. The economy can no longer be viewed as microeconomics and macroeconomics. It has many more levels of interaction between entities than it did in the past.
Many new external influences have been introduced into national economies. These influences make the reactions of consumers more volatile and unpredictable. Their actions cannot be as easily controlled as in the past. The effects of fiscal policies are diluted by the size of the economy. The Keynesian basics of supply and demand still apply, but the world is much more complex than that. New economic models are attempting to reconcile predictability in an unpredictable world. They continue to rely on Keynes, but they are taking a more global perspective.
The world is changing and this has been reflected in recent policies towards big business failures. The most recent is the failure of GM. Many workers will be displaced by plant closings, but on a macro level, it is not the end of the world in macroeconomic terms. GM was not the entire economy and the effects of plant closings may be devastating to those that are affected, but in the bigger picture, this will open up the global auto market to new players. The failure of President Obama to attempt to apply a Keynesian fix at the last minute demonstrates attention to the bigger picture. It also represents a major departure from strict Keynesian policies and their penchant for control. It is not yet known which direction these new changes will take in the future, but one can be certain that drastic…