Where do you get the best picture of life’s most difficult concepts, in the classroom
or in the kitchen?
Stirring the Pot of Keynesian Economics
In The Classroom…
John Maynard Keynes’s book, The General Theory of Employment, Interest and Money, launched the macro-economic idea that government spending is the best way to stimulate the economy. Money flows in a circle, meaning one person’s spending provides income for another. In a recession, people slow their spending, thereby slowing someone else’s earning.
To grease the cycle, Keynes proposed something radically different from other free market economists – he called on the government to inject money into the economy and kickstart the cycle by “priming the pump.” His argument was that government should solve economic problems rather than waiting for markets to self-correct in the long run because, “In the long run, we’re all dead.”
In The Kitchen…
A Keynesian cook would be a big fan of risotto, a dish that requires a fair bit of intervention on the part of the cook (the government). Unlike regular rice, which is dumped into a free market pot of boiling water and left to fend for itself, risotto must be regulated. The cook adds ladlefuls of hot stock to a pot, allowing the rice to absorb it. When it begins to dry during a stock recession, he intervenes with another ladleful, refusing to let the free market forces of unregulated Arborio rice dry out and ruin dinner.
See “Sticky Derivatives”
Courtesy of the Australian Financial Review