The World Economy — Three Beliefs and Five Economists

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 Writes Ramanan:

How did Keynes and the Cambridge Keynesians (such as Joan Robinson, Richard Kahn, Nicholas Kaldor and Wynne Godley) think the world economy works? 

A few important principles relevant here and of course not exhaustive: 

First, real demand, output and employment is determined by the fiscal and monetary policies of the government with the former having a more solid impact on demand. Second, fiscal policy has constraints due to the capacity to produce, and inflation. High inflation – although also influenced by demand – needs to to tackled by direct political means as it is also (highly) dependent on costs. Third, economies have a balance-of-payments constraint and a nation’s success depends crucially on how its producers perform in international markets.