Australian Prime Minister Kevin Rudd's plan to go ahead with an ambitious national high-speed fibre-optic broadband network has all the hallmarks of classic Keynesian economics
Australian Prime Minister Kevin Rudd's plan to go ahead with an ambitious national high-speed fibre-optic broadband network has all the hallmarks of classic Keynesian economics
If a man who has been living in a cave for the last ten years were to come out today, then what would be his first indication that we are in the midst of a recession? It would not be the way people look we are a sedentary race with an average of two to three jowls or the crowds in malls we hang around without buying things these days but the strident cry of industry captains saying that the government should play a more active role in running companies (read this as companies asking for bailouts from governments). Our caveman would probably remember that ten years ago, these very captains would have said that no government should interfere in a corporate entity's affairs.
How things have changed he would wonder, but if he is a student of the Keynesian school of thought, he would hardly need to be surprised. Companies who are today insisting on governments playing a role in their affairs will find a supporter in John Maynard Keynes, who said that governments should solve problems in the short run rather than waiting for market forces to do it in the long run, because, as he famously quipped, "in the long run, we are all dead."
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I'm not sure if Kevin Rudd, the current prime minister of Australia, is a fan of Keynes, but the fact that he seems so keen on spending money today shows that he has a solid appreciation of what Keynes said.
Australia wants to spend $31 billion to setup a broadband network. To some, it may seem foolish why do this when the economy is down? To such people, we can ask the same question in reverse if, in the time of a recession governments don't spend, then who will? After all, governments have traditionally been high spenders when it comes to IT.
Creating jobs
It must be mentioned that this project has been mired in controversy. In fact Telstra, the country's largest phone company, was actually dumped in December because a government panel that was overseeing bids felt that its proposal did not fit requirements. But right now is not the time to dwell upon this.
The thing that is most praise-worthy about this project is the fact that it is bound to create 37,000 jobs and this is great news for a country that expects 7 per cent joblessness this year because of the recession.
Thanking Keynes
While Keynes has his share of detractors in fact, Winston Churchill is said to have said that if you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions but Keynes' argument raised in his 1936 book The General Theory of Employment, Interest and Money are worth testing. In this book, the central argument is that the level of employment is determined not by the price of labour as in neoclassical economics, but by the spending of money.
I'm no economist, but maybe the Australian Government's attempts to spend money may do more good for the economy than the US government's bailouts.
QUICK TAKE
>>In spite of the recession, Australia wants to go ahead with a broadband network
>>The private-public project is expected to cost $31 billion
>>The project is expected to support 37,000 jobs
Who was Keynes?
John Maynard Keynes was a British economist whose ideas have had a major impact on modern economic and political theory as well as on many governments' fiscal policies. He advocated interventionist government policy, by which the government would use fiscal and monetary measures to mitigate the adverse effects of economic recessions. His ideas are the basis for the school of thought known as Keynesian economics. Time Magazine named Keynes one of 100 most influential people of the 20th century and reported "His radical idea that governments should spend money they don't have may have saved capitalism". He is one of the fathers of modern theoretical macroeconomics.
Source: Wikipedia
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