Economic Philosophy

Economic Philosophy
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Economic Philosophy
For Keynesian political philosophy, capitalism is a profoundly unstable economic system that unavoidably finds itself under attack at specific intervals. The unanticipated shock is all that is needed to upset the behavior of the economy and negatively affect economic growth. Economic actors in the economy, mainly consumers and firms are often not driven by rational evaluation of threats and prospects, but by sudden shifts from unstructured optimism and a correspondingly random pessimism. The change in attitude is linked to the fall of production, an increase in unemployment and a fall in household income. In turn, consumers often lose confidence as they are prone to more savings, and less purchase, which contract production even further (Davidson, 2011). Because a capitalist economy does not have any instant stabilization mechanism, it could lead to an indefinite fall of the economy, and to a point where the total economy might collapse. Perhaps, it is only the government that has a way of changing its actions with those of the private sectors to maintain the demand levels, which consequently might improve the situation.
When the government spends on different programs and policies, it puts money on idle factors of production to work. Moreover, by reducing interest rates and increasing the money supply, the government can encourage economic actors to be involved in the economy’s output and assumptions.

Borrowings and inflation that may result from the programs cannot be a severe threat when compared to letting the economy to function on its own. The idea that expenditure can increase aggregate demand and stimulate the economy is founded on the assumption that focused majorly on the GDP equation. Recent evidence in the United States seemingly supports the Keynesian theory.
Reference
Davidson, P. (Ed.). (2011). Post-Keynesian macroeconomic theory. Cheltenham, UK: Edward Elgar Publishing.