Feb 04 2009
Obama’s stimulus is “the first real test of Keynesian economic policy”
Published by Jason Welker at 4:59 pm under AD/AS Model,Fiscal Policy,Keynesian Economics,Macroeconomics,Monetary Policy,Recession,Supply-side economics,Taxes,Unemployment
On my way to work this morning I listened to the latest episode of WEBZ Chicago Public Radio’s excellent show This American Life. The theme of this week’s radio show was “the New Boss”. America’s new boss, Barack Obama, has embarked on an ambitious experiment aimed at rescuing the American economy from the most severe recession it has seen since the Great Depression. The economic theory behind Obama’s nearly $1 trillion economic stimulus package was developed by a man we have all heard of in our AP and IB Economics classes, but probably know little about in a historical sense.
The clip from This American Life that I have included below presents a fascinating examination of Keynes’ life and times, and puts his theory into perspective in the history of macroeconomics of the last century. We learn that Keynesian theory has not been truly put to the test, and that Obama’s $830 billion stimulus package is the first real test of Keynesianism.
The clip is a bit long, but it is definitely worth listening to if you are a student or teacher of economics. I know that when I come teo Macroeconomics and Fiscal Policy in my course this spring, I will have my kids listen to and discuss the podcast below. If you’re teaching or learning Macro now, feel free to listen and leave comments about your impressions of the story here.
About the author: Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course.
Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this authorRelated posts:
- Another insightful economic discsussion on the Daily Show: how to make fiscal stimulus work
- Fiscal Stimulus package passes in Congress – here comes $170 billion, America!
- Will the stimulus package “crowd-out” private investment and reduce long-run growth potential in America?
- Fiscal stimulus, the Swiss way
- To continue stimulus or to pursue austerity, that is the question
As I mentioned in Jordan's forum thread, this boost will lead to an increase in supply, lower prices and therefore an increase in demand and consequently an economy in which the money actually starts moving again. Though the world has never really seen this in action, in theory it makes sense in my opinion. I also think that the idea of laissez faire is not very effective when the movement of money has come to a halt and as said in an earlier blogpost, the consumers and producers have no "trust." to spend money. This is a time in which government should actually intervene as Obama said. I also support this idea of Keynes because it is a much more "moral" way of dealing with an economic crisis than what happened in the 1930's: entering war.
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