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1、Do We Need More of Keynes Now? Now that governments and central banks are subjecting their economies t0 aggressive monetary and fiscal-stimulus policies， many people say that the ideas of Keynes are back in fashion. We heard that Keynesian remedies can save world economies from plunging int0 a sever
2、e economic slump. In the United States， for instance， Republicans and Democrats are competing against each other t0 subject the American economy t0 various stimulus packages. On this the Financial Times recently wrote， The lapses int0 Keynesianism take different forms. For Republicans， it is a time
3、t0 propose new tax cuts for small businesses， including a waiver of the capital gains tax， which many believe would help stimulate economic activity. For Democrats， the preferences are for an extension of unemployment insurance， food stamps and assistance t0 struggling homeowners.Despite trillions o
4、f dollars that central banks worldwide have pumped， s0me prominent commentat0rs still maintain that it is not enough. For example， Martin Wolf writes， Yet， in current conditions， monetary policy will be insufficient. This is a Keynesian situation that requires Keynesian remedies. Budget deficits wil
5、l end up at levels previously considered unimaginable. So be it.It is extraordinary t0 suggest that Keyness ideas are now coming back t0 save the world. Keynesian ideas have never left the rooms of government and central-bank decision makers. The essence of the thinking of the most influential econo
6、mists was and still is Keynesian. So various stimulus packages that are now introduced are a continuation of the same Keynesian policies we have been subjected t0 for many decades. The present economic crisis is the outcome of the large dose of Keynesianism we have been given over many decades.In a
7、nutshell， John Maynard Keynes held that one cannot have complete trust in a market economy， which is inherently unstable. If left free， the market economy could lead t0 self-destruction. Hence there is the need for governments and central banks t0 manage the economy.Successful management in the Keyn
8、esian framework is done by influencing the overall spending in an economy. It is spending that generates income. Spending by one individual becomes income for another individual， according t0 Keynes. The more that is spent， the better it is going t0 be. What drives the economy then is spending.Consu
9、mption and ProductionIn the Keynesian framework， the largest chunk of spending is on account of consumer outlays. Therefore consumer outlays are regarded as the mot0r of the economy consumption sets in motion real economic growth.But is consumption the mot0r of the economy? We suggest that one must
10、make a distinction between productive and nonproductive consumption. While productive consumption is an agent of economic growth， nonproductive consumption leads t0 economic impoverishment.Productive ConsumptionA baker exchanges his ten saved loaves of bread for ten potat0es. The potat0es are now su
11、staining or funding the baker while he is engaged in the baking of bread. Likewise the bread sustains the potat0 farmer while he is engaged in the production of potat0es. The respective production of the baker and of the potat0 farmer enables them t0 secure goods for consumption.What makes the consu
12、mption productive in this example is the fact that both the baker and the potat0 farmer consume in order t0 be able t0 produce. The consumption of both the baker and the potat0 farmer maintains their lives and well-being. This is the only reas0n for production.The introduction of money doesnt change
13、 what was said s0 far. For instance the baker can exchange his ten loaves of bread for $10 he then uses money t0 secure ten potat0es. Likewise the potat0 farmer can now exchange his ten dollars for ten loaves of bread. Observe that， apart from fulfilling the role of the medium of exchange， money has
14、 contributed abs0lutely nothing t0 the production of bread and potat0es.Nonproductive ConsumptionSo far we have seen that t0 secure potat0es， the baker had t0 exchange bread for money and then employed money t0 secure potat0es. Something was exchanged for money， which in turn was exchanged for s0met
15、hing else or s0mething for s0mething is exchanged with the help of money.Trouble erupts when money is created “out of thin air.” Such money gives rise t0 consumption， which is not backed by any production. It leads t0 an exchange of nothing for s0mething.For instance， a counterfeiter has printed a
16、perfect $20 note. Since he secured this money by means other than the production of s0me useful goods or services， the counterfeiter has therefore obtained the $20 by exchanging nothing for it.The counterfeiter uses the $20 t0 buy ten loaves of bread. What we have here is the diversion of real funding ten loaves of bread from a potat0 farmer t0wards the counterfeiter. Note that the diversion takes place
