Keynesian Economic Policies for the New Millennium

Abstract

In this paper, we outline an approach to economic policy in which there is an emphasis on the need for both demand-side and supply-side policies to secure full employment. Our approach can be considered Keynesian in the sense that its policy implications arise from the perception of the role of aggregate demand in setting the level of economic activity and the lack of automatic forces leading a market economy to full employment. Our conception of the operations of a market economy is briefly outlined in Section 2. This we further elaborate upon in Section 3 by considering the constraints on achieving full employment that operate in a market economy. This leads into Section 4 in which we outline and analyse the nature of Keynesian policies relating both to the demand and supply side of the economy. The final main Section, 5, considers some of the constraints, and ways of overcoming them, on the implementation of the type of Keynesian policies which we are advocating. There are two key elements of Keynes (1936) on which we draw. The first is the contention that a laissez-faire market economy will not usually generate full employment. The obstacles to the achievement of full employment are not some 'imperfections' like monopolistic competition or trade union activity, which could potentially be removed through government action (cf. Shapiro, 1996). It is rather that a laissez faire market economy would exhibit elements of instability and does not usually generate a level of aggregate demand consistent with full employment. The second is that a less unequal distribution of market power, income and wealth is another desirable goal in its own right and a vehicle for increasing general prosperity. As Keynes (1936) remarked, 'The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes' (p. 372).