Neoclassical economists are naturally more reluctant than Keynesians to concede that capitalism as a system might be dysfunctional or that markets might be irrational and inefficient, leading to cycles of boom and bust, mass poverty and unemployment, which happened in the 1930s and is happening again today. One of the main assumptions in the classical model is ‘full employed equilibrium’ or in other words ‘absence of involuntary unemployment.’ The classical model assumes that supply of labor and real wage are positively related. Assuming that the wages are flexible, the aggregate supply curve is vertical because a change in the price level does not affect the output. Equilibrium occurs when aggregate demand and aggregate supply intersect. In the absence of regulations, the labor market is always in equilibrium, thus the intersection point determines the real wage, and equilibrium demand and supply. Since the demand and supply are equal in the classical model, there is no involuntary unemployment.
Under this classical model, the main causes of unemployment as a mismatch between the skills and education possessed by the workforce and those demanded by employers, or frictions between vacancies and job seekers, especially with disadvantaged groups, the long-term unemployed and those lacking the information or contacts to find employment. Employers also tend to distrust the motivation and productivity of the long-term unemployed. John Maynard Keynes argued that the real cause of mass unemployment was the lack of aggregate consumer demand in the economy which caused private investment and hiring to stagnate and decline. Keynes would have insisted that the central government had a moral duty to stabilize the economy and use deficit spending on public works and infrastructure to create jobs. Milton Friedman and other free market and monetarist economists argued that Keynesian simply did not work, and argued for central bank manipulation of money supplies and interest rates as a way of eliminating boom and bust cycles. This was the specialty of Federal Reserve Chair Alan Greenspan, a devout disciple of Friedman, Ayn Rand and other free market ideologues, but in the wake of the great crash even he had to admit that these policies had failed. Intense speculation increased tremendously in the U.S. And other economies over the past thirty years as well, while the tax system became continually less egalitarian — to the point where many wealthy corporations and individuals pay no taxes at all (Minsky160).
Keynes argued that capitalism did not produce full employment in the absence of fiscal or monetary stimulus from the central government, which would increase aggregate demand (Mankiw 770). Most Western governments have been pursuing these Keynesian policies of deficit spending to stimulate the economy despite absolutely hysterical opposition from conservative economists and political parties. Keynes was completely correct that these policies and failed in the past and were downright disastrous when attempted during the 1930s depression (Mankiw 794-95). In fact, he developed his own theories for the explicit purpose of countering them. His General Theory (1936) was a product of the Great Depression “in which inefficiency of aggregate demand was identified as the main economic problem” (Skidelsky 152). Governments had to ensure full employment to maintain maximum aggregate demand, while on the supply side taking action to ensure that monopolies and oligopolies did not keep prices artificially high.
Keynes regarded laissez faire and classical economics as a mechanistic, Newtonian philosophy of the 18th Century that may have fitted the small-scale, decentralized economy that existed at that time but no longer applied to a system of giant corporations. At other times, he described it as a “superstitious faith in the market as an end in itself,” a kind of religion that conservatives still adhere to today (Clarke 4). Wealth that was unjustly acquired or unfairly distributed was immoral, and the love of money was a mental illness. Moreover, when capitalism collapses, as it did in 1929 or in 2008-09, this leads to well justified doubts about its efficiency “for increasing material wealth” (Skidelsky 132).
Keynesianism was the dominant economic policy in the Western world from the 1940s to the 1970s, and in retrospect was more successful than the classical or laissez faire capitalism of the Calvin Coolidge or Margaret Thatcher variety. No depression or financial crash occurred in the period from 1945-73, and even though Keynesianism did not abolish the business cycle, it bottom phases were not so low and its recessions not as long as in the 1930s, the 1980s or the present (Minsky 160). During this era “full employment was maintained, real wages rose constantly, economies were relatively stable, and wealth and income inequalities were reduced,” which was definitely not the case in the 1920s and 1930s or in the last thirty years (Skidelsky 164).
2) As a Keynesian, Paul Krugman assumes that weak consumer demand and high unemployment will result in less overall private investment, even though the Federal Reserve is keeping interest rates as low as possible and has engaged in quantitative easing to stimulate the economy. The assumptions of the classical model are idealistic, yet unrealistic. When an economic crisis kicks in, both individuals and firms tend to save more than usual and there will be more involuntary unemployment. Again, it is the set of assumptions that define an economic model, but the assumptions of the classical model have numerous limitations when applied to real life contexts. Say’s law highlights that demand is passive in a classical model. In a loanable funds market of the classical model, saving is increased when spending less. This leads to a decrease in interest rate, and lower interest rate causes more demand to invest. Thus, consumption goes up again. The aggregate demand does not change here since aggregate demand in a loanable funds market is the sum of consumption and investment. (G & NX are held constant in this case). Republican conservatives and free market purist have criticized this in the usual predictable way. Some laissez faire advocates like Ron Paul would even abolish the Fed and return to the gold standard if they could, since they blame the risk of inflation, budget deficits and the weak dollar as the main causes of the Great Recession. Krugman points out that even Bloomberg noted that private investment was declining because of concerns about overall weakness in the economy. Keynes had also observed this “paradox of thrift” during the Great Depression, when private investors lacked confidence in the general economic situation and preferred to hoard savings as much as possible rather than risk making new investments.
In normal times, when the Fed cuts interest rates it makes capital cheaper and stimulates more private investment. In severe recessions like the present one, though, these mechanisms no longer work, since the natural tendency is to save and avoid risk rather than make new investments. Fiscal austerity measures of the type normally imposed by the IMF and being undertaken now in Europe are indeed a “terrible idea” since they push down aggregate demand even further and increase unemployment even further (Krugman 2009). To be sure, the Federal Reserve or other central banks do not set the actual interest rates nor can they requires banks to increase lending, which they are surely unwilling to do in the present economy. For two years now, the Fed has kept its own discount rate near zero, which is standard monetarist (and Keynesian) practice during severe recessions, when the main concern is not inflation but deflation. In the Keynesian model, this lack of private investment can only be rectified by more public spending, government jobs programs and direct state investment in the economy, rather than cutting these and imposing austerity measures as conservatives and laissez fair ideologues demand. In contrast to the neoclassical models, though, Keynesians insist that the supply of private loanable funds simply will not meet the demand in an economy of persistently high unemployment and low aggregate demand like the present, and therefore government intervention is imperative.
3) After three years of the Great Recession, nothing could be clearer than the fact that private companies are simply not hiring in large enough numbers to meet the demand for jobs, at least not in this country. They have been “finding ways to do more with fewer workers, dimming hopes that hiring will take off anytime soon” (Crutsinger and Manning 2009). Despite productivity gains, wages and incomes have been stagnant or falling, and this has been a persistent problem in the American economy for the last thirty years. According to neoclassical theory, higher productivity should translate into gains in wages and incomes, but since the 1970s almost all of the gains have been concentrated in the hands of the upper 10-20%, and especially the upper 1%. Output per hour has been increasing, but wages “remain flat or falling,” and as long as “companies can get their workers to produce more, they have little reason to hire at least until consumer spending picks up” (Crutsinger and Manning 2009). As John Maynard Keynes pointed out in the 1930s and Paul Krugman repeats today, this has the paradoxical effect or reducing consumer demand even further and trapping the unemployed in a vicious cycle which they cannot escape without government intervention. Of course, in the current Congress, conservative supporters of minimal government and laissez faire theories are in a position to block all such stimulus measures.
Neoclassical theorists would argue that once wages have fallen sufficiently in this recession and employers are unable to force more gains in productivity, they will have no choice except to hire new workers, although they may choose to do so in low-wage countries like China. There has been little sign that massive new hiring is taking place in the United States or other Western economies, even though the layoffs of hundreds of thousands per month that were common in 2008-09 have not yet been repeated. In fact, productivity gains and declines in real wages have been consistently higher than these economists expected, while unemployment has remained higher than they predicted. As Joel Naroff, chief economist at Naroff Economic Advisors, put it: “Survival meant cutting costs as rapidly as possible and fulfilling orders with the fewest number of workers” (Crutsinger and Manning 2009). They are using even more overtime and temporary workers rather than new full-time employees to lower costs, which has also been a persistent trend in the American economy over the last thirty years. Most of them also have little confidence in a rapid economic recovery or a rise in consumer demand, which makes them reluctant to hire new employees and bring back those who have been laid off. Even in 2009, though, economists believed that companies were “starting to reach the limits of how much they can produce with their shrunken workforces” (Crutsinger and Manning 2009). This has not really occurred, however, and the removal of stimulus measures and the election of laissez faire, deficit-cutting conservatives to Congress — who also seem determined to depress the economy for political reasons — kept consumer demand relatively flat, along with hiring.
Clarke, P. Keynes: The Rise, Fall and Return of the 20th Century’s Most Influential Economist. Bloomsbury Press, 2009.
Crutsinger, Martin and Stephen Manning. “Productivity Gains May Be Bad News for Job Seekers.” AP Business Writers, Nov 5, 2009.
Krugman, Paul. “We’re Still in a Paradox of Thrift World” New York Times blog post August 26, 2010, 9:38 AM
Mankiw, N.G. Principles of Economics. South-Western College Publishers, 2010.
Minsky, H.P. John Maynard Keynes: Hyman P. Minsky’s Influential Re-Interpretation of the Keynesian Revolution. McGraw-Hill, 2008.
Skidelsky, R. Keynes: The Return of the Master. Perseus Books Group, 2010.
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Students barely have time to read. We got you! Have your literature essay or book review written without having the hassle of reading the book. You can get your literature paper custom-written for you by our literature specialists.
Do you struggle with finance? No need to torture yourself if finance is not your cup of tea. You can order your finance paper from our academic writing service and get 100% original work from competent finance experts.
While psychology may be an interesting subject, you may lack sufficient time to handle your assignments. Don’t despair; by using our academic writing service, you can be assured of perfect grades. Moreover, your grades will be consistent.
Engineering is quite a demanding subject. Students face a lot of pressure and barely have enough time to do what they love to do. Our academic writing service got you covered! Our engineering specialists follow the paper instructions and ensure timely delivery of the paper.
In the nursing course, you may have difficulties with literature reviews, annotated bibliographies, critical essays, and other assignments. Our nursing assignment writers will offer you professional nursing paper help at low prices.
Truth be told, sociology papers can be quite exhausting. Our academic writing service relieves you of fatigue, pressure, and stress. You can relax and have peace of mind as our academic writers handle your sociology assignment.
We take pride in having some of the best business writers in the industry. Our business writers have a lot of experience in the field. They are reliable, and you can be assured of a high-grade paper. They are able to handle business papers of any subject, length, deadline, and difficulty!
We boast of having some of the most experienced statistics experts in the industry. Our statistics experts have diverse skills, expertise, and knowledge to handle any kind of assignment. They have access to all kinds of software to get your assignment done.
Writing a law essay may prove to be an insurmountable obstacle, especially when you need to know the peculiarities of the legislative framework. Take advantage of our top-notch law specialists and get superb grades and 100% satisfaction.
We have highlighted some of the most popular subjects we handle above. Those are just a tip of the iceberg. We deal in all academic disciplines since our writers are as diverse. They have been drawn from across all disciplines, and orders are assigned to those writers believed to be the best in the field. In a nutshell, there is no task we cannot handle; all you need to do is place your order with us. As long as your instructions are clear, just trust we shall deliver irrespective of the discipline.
Our essay writers are graduates with bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college degree. All our academic writers have a minimum of two years of academic writing. We have a stringent recruitment process to ensure that we get only the most competent essay writers in the industry. We also ensure that the writers are handsomely compensated for their value. The majority of our writers are native English speakers. As such, the fluency of language and grammar is impeccable.
There is a very low likelihood that you won’t like the paper.
Not at all. All papers are written from scratch. There is no way your tutor or instructor will realize that you did not write the paper yourself. In fact, we recommend using our assignment help services for consistent results.
We check all papers for plagiarism before we submit them. We use powerful plagiarism checking software such as SafeAssign, LopesWrite, and Turnitin. We also upload the plagiarism report so that you can review it. We understand that plagiarism is academic suicide. We would not take the risk of submitting plagiarized work and jeopardize your academic journey. Furthermore, we do not sell or use prewritten papers, and each paper is written from scratch.
You determine when you get the paper by setting the deadline when placing the order. All papers are delivered within the deadline. We are well aware that we operate in a time-sensitive industry. As such, we have laid out strategies to ensure that the client receives the paper on time and they never miss the deadline. We understand that papers that are submitted late have some points deducted. We do not want you to miss any points due to late submission. We work on beating deadlines by huge margins in order to ensure that you have ample time to review the paper before you submit it.
We have a privacy and confidentiality policy that guides our work. We NEVER share any customer information with third parties. Noone will ever know that you used our assignment help services. It’s only between you and us. We are bound by our policies to protect the customer’s identity and information. All your information, such as your names, phone number, email, order information, and so on, are protected. We have robust security systems that ensure that your data is protected. Hacking our systems is close to impossible, and it has never happened.
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY!!!
We provide professional writing services to help you score straight A’s by submitting custom written assignments that mirror your guidelines.
Get result-oriented writing and never worry about grades anymore. We follow the highest quality standards to make sure that you get perfect assignments.
Our writers have experience in dealing with papers of every educational level. You can surely rely on the expertise of our qualified professionals.
Your deadline is our threshold for success and we take it very seriously. We make sure you receive your papers before your predefined time.
Someone from our customer support team is always here to respond to your questions. So, hit us up if you have got any ambiguity or concern.
Sit back and relax while we help you out with writing your papers. We have an ultimate policy for keeping your personal and order-related details a secret.
We assure you that your document will be thoroughly checked for plagiarism and grammatical errors as we use highly authentic and licit sources.
Still reluctant about placing an order? Our 100% Moneyback Guarantee backs you up on rare occasions where you aren’t satisfied with the writing.
You don’t have to wait for an update for hours; you can track the progress of your order any time you want. We share the status after each step.
Although you can leverage our expertise for any writing task, we have a knack for creating flawless papers for the following document types.
Although you can leverage our expertise for any writing task, we have a knack for creating flawless papers for the following document types.
From brainstorming your paper's outline to perfecting its grammar, we perform every step carefully to make your paper worthy of A grade.
Hire your preferred writer anytime. Simply specify if you want your preferred expert to write your paper and we’ll make that happen.
Get an elaborate and authentic grammar check report with your work to have the grammar goodness sealed in your document.
You can purchase this feature if you want our writers to sum up your paper in the form of a concise and well-articulated summary.
You don’t have to worry about plagiarism anymore. Get a plagiarism report to certify the uniqueness of your work.
Join us for the best experience while seeking writing assistance in your college life. A good grade is all you need to boost up your academic excellence and we are all about it.
We create perfect papers according to the guidelines.
We seamlessly edit out errors from your papers.
We thoroughly read your final draft to identify errors.
Work with ultimate peace of mind because we ensure that your academic work is our responsibility and your grades are a top concern for us!
Dedication. Quality. Commitment. Punctuality
Here is what we have achieved so far. These numbers are evidence that we go the extra mile to make your college journey successful.
We have the most intuitive and minimalistic process so that you can easily place an order. Just follow a few steps to unlock success.
We understand your guidelines first before delivering any writing service. You can discuss your writing needs and we will have them evaluated by our dedicated team.
We write your papers in a standardized way. We complete your work in such a way that it turns out to be a perfect description of your guidelines.
We promise you excellent grades and academic excellence that you always longed for. Our writers stay in touch with you via email.