This theory implies that higher government spending in a recession is the solution to helping the economy recovery quicker. The theory also implies that it is an oversight to wait for markets. More in particular, Keynesian fiscal expenses are directed more to offset households’ and businesses’ boost of savings during a recession. “Keynes' general theory of money was written in the 1930s, when there was ample evidence of the failing of the free market to achieve full employment. Faced with this mass unemployment, Keynes advocated government intervention (higher government spending) to stimulate a depressed economy” ().
This cycle is called the multiplier effect. Keynes ideas have resonated throughout the economic world and are still being put into practice in today’s economy. Keynes asserted that because the private sector is unpredictable, it may have a negative impact on the economy, and thus government interference is necessary to raise the GDP. He believed this is done by inserting money into the economy or investing. Many economists have begun advocating major government intervention in order to balance out today’s economy.
This book has made me question the long term sustainability of the already evolving economic globalization process. Rodrik explains that the process of globalization must be managed so that the entire world can benefit. The first point that Rodrik makes is that markets are limited by the scope of governance or regulation. He argues that markets and governments are most effective when they are operating in accordance with one another. This theory seems to stem from a theory earlier developed by the famous economist Adam Smith, which was that “the division of labor is limited by the extent of the market.” Rodrik expands on this theory by saying that not only is labor limited by the market, but that markets are limited by government.
This ideology is one that has been strongly advocated throughout America’s existence, by politicians from Alexander Hamilton to Pat Buchanan. When a nation faces a trade deficit, it means that competing states are producing more efficiently, and ultimately making profiting. Also, a deficit means that industry and jobs, which could exist domestically, are being “stolen” by foreign nations. According to mercantile policy, this is a zero-sum game; when a competitor is winning, we are losing. The United States faces this situation, having evolved from the world’s largest creditor nation during and following World War II to its current position as the world’s largest debtor.
Economics, commerce, money theory, production, business cycles, government intervention, credit/debit and many other things were paved with a heavy foundation involving these four economists. Each had their very own opinions in light to each other, which only gave way to new findings about our economies in whole. Along with ideas came great contributions to nations as well. Karl Marx was sort of the founder of modern communism, by merging politics and economics he gave way to new ideas involving the working class owning part of what they create. John Maynard Keynes emphasized the idea that government should intervene with fiscal and monetary policy to save economic downturns and recessions.
Both their theories have provided a better understanding of our society by examining our society and the crucial elements within it at a deeper level. Alienation then, is the breakdown of the interconnectedness in society imposed by the structure of society that is, to Marx an important part of life. Well, at least in an ideal sense. Anomie is defined as a state reached when society is marked by unchecked economic progress. Although Marx and Durkheim approached the issue of modern society in different analytic manner, there is one thing that is undisputed, it has greatly impacted sociology today and maintain a level of truth as well as value for the future.
Capitalism dominates the world today. Known as a system to create wealth, capitalism’s main purpose is to increase profits through land, labor and free market. It is a replacement of feudalism and slavery. It promises to provide equality and increases living standards through equal exchanges, technological innovations and mass productions. However, taking a look at the global economy today, one can clearly see the disparity between developed and developing countries, and the persistence of poverty throughout the world despite the existence of abundant wealth.
In this way, capitalism’s efficiency and promotion of the common good is questionable. Since the resurgence of unregulated capitalism in the late 20th century, social inequalities have grown significantly, with one percent of the most powerful countries attaining more wealth than half the world (Dunklin 2). Canada’s income gap has also risen, exacerbating morbidity and mortality (Bryant 47). However, the extent that government should reduce social inequities is controversial in a liberal democracy, which prioritizes economic freedom. That being said, social inequalities may lead to wealthier individuals gaining an advantage in policy making (Bryant 54; Rein 63), undermining the liberal democratic value of political equality.
A government must weigh carefully these advantages and disadvantages before deciding to deficit spend to achieve the desired result. Another way of looking at deficit spending is The biggest advantage to deficit spending is the multiplier effect. This is when the government spends money back, which goes into the private sector of the economy, and it stimulates businesses to increase production. This requires more employees and then more people will have jobs putting their own money back into the economy. The multiplier effect is the desired outcome from deficit spending, as it will likely start an economy back on the right path after a recession (Lee, 2012).
The paradox of electoral economics focuses on how governments interact with conditions of economic growth. Additionally, this paradox includes the government’s interactions with market economies and how the economic interactions coincide with politics. The paradox of electoral economics states that all governments require positive economic performance. In other words, governments need up to par economies in order to sustain their own foundation, weak economy means weak infrastructure. The paradox also requires support and compliance and states that democratic governments are particularly vulnerable to economic performance.