Mises
Institute: While
elected officials and various pundits are clear that they believe the
Keynesians can solve the current crisis, do the Keynesians have a theory that
explains what caused the crisis in the first place?
Mark
Thornton: Keynesian
business cycle theories are based on the idea that cycles are caused by changes
in aggregate demand. This theory, however, provides no purely economic cause
for business cycles. The instigator or cause in Keynesian theory is a
psychological factor that is driven by so-called “animal spirits.” Small
changes in entrepreneurs’ optimism and pessimism affect their investment
decisions and can spread and snowball out of control causing sharp increases
and decreases in aggregate demand, profits, and employment…..To Read More….
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