Keynesian Economics

Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

Published by Jake Bleicher

When most people think about John Maynard Keynes they usually think about Keynesian economics. His work has helped to shape modern economic policy and played a monumental role in revitalizing the global economy after the Great Depression. The theory of supply and demand is nothing new; Adam Smith does a fine job of elucidating this concept in Wealth of Nations (1776). The thought was supply will always be met with demand, but the price to create demand may be much lower than the supplier would like. In the years leading up to the Great Depression, demand in certain economic sectors dried up completely and created high unemployment. Keynesian economics advocate for government intervention to moderate demand during down cycles in the economy. In the latter half of the decade, critics of Keynes became dismissive of governmental stimulus.

It remains a controversial subject today after being brought back into the limelight by Ben Bernanke. Forget for a moment the dovish and hawkish arguments and Wall Street’s absurd focus on “considerable time.” Keynes was a macroeconomist, and for the most part, his theories are still relevant today. Compare the recovery in the US with that of Europe. Europe adopted starkly different policies than the US, rather than stimulate the economy they cut government spending. It appears more and more likely that Europe’s austerity measures will be replaced with an endorsement of Keynesian economics.

What most people do not know is Keynes was a very successful investor. Before Benjamin Graham wrote Warren Buffett’s favorite book (The Intelligent Investor), Keynes was successfully employing value investing. In addition to managing his own investments, he managed the assets of the King’s College, Cambridge and the National Mutual Insurance Company. His investment philosophy consisted of three main pillars:

  1. Select investments that are priced below their intrinsic value.
  2. Continue to hold the investments until they have fulfilled their promise, or if you realize you have made an error in your assumptions.
  3. Take large positions, but diversify the risks across the portfolio.

These concepts are nearly identical to Warren Buffett’s widely touted philosophies. Though Buffett has more media outlets canonizing his every word, a selection of a few quotes illustrates my point:

  1. “Price is what you pay; value is what you get.” “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
  2. “Our favorite holding period is forever.”
  3. “When we are convinced as to attractiveness, we believe in buying worthwhile amounts” “Diversification is protection against ignorance. It makes little sense if you know what you are doing.” (Perhaps the quote doesn’t make the connection clear enough, but both Buffett and Keynes endorse balancing of risk, just not blind diversification.)

When Keynes died in 1946, his net worth was approximately $17 million (in today’s dollars). Unimpressed? Like Buffett does today, Keynes had donated most of his money to various charities prior to his death. The money he amassed during his investment career was far more substantial. Keynes’ philosophies are still alive and well today. I think in twenty years when all of the dust settles from the economic crisis, we will look back and again marvel at the profound impact his works have had in finance and economics.

Share:
facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

RECENT POSTS

10 Questions to Ask Your Advisor

We’re on a mission to deliver trust, transparency and accountability to clients. As your trusted advisor, we equip you with the tools you need to make educated decisions regarding your financial future. To start, we have listed 10 Important Questions That Each Investor Should Ask Thei …

Retirement Funding: More than a 401k Account

Published by Mark Petersen People have many different ways of saving for retirement. One may utilize pre-tax or post tax savings, invest in appreciating assets or collectibles or even allocate money to assets which may simply maintain their value over time.

Creating an Enduring, Intangible Legacy

Published by Beth Schanou, Creating a lasting legacy requires more than legal documents transferring material assets. Although a considerable amount of time is spent on the estate planning process, often the transfer of wisdom, insight, experience and other similar intangibles are not considered.

A Life Defined Starts Here

Many people set goals, yet on average they only attempt them less than once. Those who do reach their goals attribute their success to setting tangible, measurable objectives – and pursuing them with focus and determination, even when faced with challenges. Click here to open fullscreen
1 2 3 85 86 87 88 89

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation