Why do economies sometimes crash?
Image: ChristophRoser. Please credit "Christoph Roser at AllAboutLean.com"., CC BY-SA 4.0, via Wikimedia Commons
John Maynard Keynes proposed in 1936 that governments should spend during recessions, inverting prevailing economic orthodoxy
Why do economies sometimes crash?
Imagine you're at a party where everyone suddenly stops talking and dancing. The party's vibe (the economy) drops because people aren't spending money (dancing) or buying things (talking).
Keynes believed that when people stop spending, the party (economy) slows down. He thought that if the government (party host) stepped in to spend money (start dancing), it could get the party going again.
Example
If 100 guests (people) at the party suddenly stop spending 10 each (dancing), the party's vibe drops by 1,000.
Remember this
Government spending can kickstart the economy when private spending falls.
Text adapted from Wikipedia, licensed under CC BY-SA 4.0.
Related concepts
The Road to Serfdom
Friedrich Hayek warns of tyranny from central economic planning in The Road to Serfdom
Post-Keynesian economics
Ever wonder why the economy booms or busts?
Causes of the Great Depression
Did you know classical economics struggled during the Great Depression?
Universal Turing machine
Alan Turing introduced the Turing machine in 1936
Economics
Keynesian economics emphasizes aggregate demand as a driver of employment
Animal spirits (Keynes)
How do emotions drive our spending habits?
Swipe through more Discover concepts
Open Pocket Polymath