Post Keynesian Theory and Policy

Post Keynesian Theory and Policy

A Realistic Analysis of the Market Oriented Capitalist Economy

New Directions in Post-Keynesian Economics series

Paul Davidson

How did economic “experts” worldwide fail to predict the financial crisis of 2007-2008? Eminent economist Paul Davidson discusses how mainstream economic theory may not be applicable to the world of experience. Post Keynesian theory is designed to be applicable to the real world, and this book demonstrates how applying it to policy formulation could help practically resolve economic problems. Davidson goes on to demonstrate how many Post Keynesian economists warned of the impending financial crisis as early as 2002.

Chapter 11: Policies to assure a civilized capitalist economic system

Paul Davidson

Subjects: economics and finance, history of economic thought, post-keynesian economics


A civilized society should encourage its citizens to excel in all the endeavors they undertake. A civilized society must also provide its citizens with the opportunities to work. A civilized society should also encourage the productive members of the community to maintain a sensitivity and compassion for the needs of others and to have open and honest contractual dealing with everyone. All these objectives are easier to obtain in a capitalist economic system where everyone has the opportunity to work and earn income. The ability to earn an honest day’s income for an honest day’s work creates self-esteem for the employed person and all the members of his/her household. Accordingly, government policies should be designed to assure a profitable full employment economy. For almost the last four decades, however, the public debate over economic policy has been dominated by the belief that if self-interested individuals are permitted to operate in a free market without government interference and regulation, and without worrying about other members of the community, the resulting free market will bring about an economic Utopia. Yet the terrible 2007–2008 global financial crisis resulted from deregulating financial institutions while permitting self-interested mortgage originators to encourage subprime borrowers to obtain a mortgage for a home they could not afford.

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