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Sunday, September 30, 2007

Keynes holds true, even today, even in China about the proper role of Government

In China, in the last few years, the GDP has skyrocketed by percentages in the double-digits. This Growth is attributed to a continually improving infrastructure of technology and capital.

This is A textbook example of what John Maynard Keynes said about the great depression here. He said that an increase GDP in a nation is attributable to how much demand is in an economy. He said to cause growth, there must be spending, and from this spending, there must be some of the revenue saved and invested into infrastructure, factories, plants, technology, etc. to devise new and more efficient to create the same amount of goods as before, with time money and manpower left for more growth and consumption. This SHOULD be the continual cycle creating more and more wealth.

The problem with both China's poverty and America's poverty during the depression, (and why this is so analogous) is that the average citizens did not have the money to imput into the system. Yes, demand needed to be raised, but this raise could not come from consumer demand. Keynes remedy to this, which China is following better now than the U.S. did in the depresion, is that the excess, stimulating demand must come from government.

In one of China's fastest growing coastal provinces, the Shandong Provence, the provincial government spent the Chinese equivalent to $33 million in U.S. dollars to fund multiple infrastructure improvement programs.

Keynes argument was that the proper role of government (from a CORRECTIVE STATE standpoint) is to do the investing to raise demand if and only if the private sector fails to. It is amazing that this still holds true.

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