The public policy doctrine or ordre public (French: lit.

"public order") concerns the body of

principles that underpin the operation of legal systems in each state. This addresses the social,
moral and economic values that tie a society together: values that vary in different cultures and
change over time. Law regulates behaviour either to reinforce existing social expectations or to
encourage constructive change, and laws are most likely to be effective when they are
consistent with the most generally accepted societal norms and reflect the collective morality of
the society.

In performing this function, Cappalli[who?] has suggested that the critical values of any legal
system include impartiality, neutrality, certainty, equality, openness, flexibility, and growth.
This assumes that a state's courts function as dispute resolution systems, which avoid the
violence that often otherwise accompanies private resolution of disputes. That is, citizens have
to be encouraged to use the court system to resolve their disputes. The more certain and
predictable the outcome of a court action, the less incentive there is to go to court where a loss
is probable. But certainty must be subject to the needs of individual justice, hence the
development of equity.

The following lists these categories followed by a few examples of specific, respective policies:
Criminal Justice: death penalty, drug policy, and gun control. Culture and Society: abortion,
arts, and civil rights. Economic Affairs: budget and taxes.
Public Policy Formation, Adoption and Implementation. Public policy formation is the study,
creation and implementation of laws, regulations, funding priorities or other actions on a
specific public issue by a local, state or federal government.
Public policy can be generally defined as a system of laws, regulatory measures, courses of
action, and funding priorities concerning a given topic promulgated by a governmental entity or
its representatives. ... Shaping public policy is obviously different in Western-style democracies
than in other forms of government.
Conditional cash transfer (CCT) programs aim to reduce poverty by making welfare programs
conditional upon the receivers' actions. The government (or a charity) only transfers the money
to persons who meet certain criteria.
The conditional cash transfer (CCT) program locally known as Pantawid Pamilya Pilipino
Program, or 4Ps, is a government program that provides conditional cash grants to the poorest
of the poor in the Philippines.
Benefits in kind are benefits which employees or directors receive from their employment but
which are not included in their salary cheque or wages. They are sometimes called 'perks' or
'fringe benefits'. They include things like company cars, private medical insurance paid for by
the employer and cheap or free loans.
The Philippine government shows its serious effort to combat poverty through the continuing
expansion of the Pantawid Pamilyang Pilipino Progam (4Ps), the Philippines’ version of the
conditional cash transfer (CCT) program modeled by Latin American countries. The 4Ps by far
is the most comprehensive and also, controversial poverty reduction program of the Philippine
government because of the huge amount of money the government is spending for this. The
expansion of the program since 2008 necessitated the government to secure loans from the
World Bank and the Asian Development Bank amounting to a total of $805 million to finance
the program. To date, there are already 2.3 million households in 80 provinces who are enrolled
in the programme. The DSWD targets a total of 3 million household beneficiaries by end of
2012. This paper aims to discuss the salient features of the 4Ps and the reviews or assessments
done so far, and to expound the issues surrounding the targeting scheme and pace of expansion
of the program.

In the 2000 Millennium Declaration, the Philippines was among the many nations which
committed to reduce its poverty rate by 2015. There are only a few years left into 2015 but the
country’s poverty situation is still far from its target. Worse, the poverty trend is going upwards.
In the newly improved poverty estimation, the poverty rate of the population climbed up from
24.9 in 2003 to 26.4 in 2006 and inched up further to 26.5 percent in 2009 marking an increase
of 3.3 million poor individuals from 2003 to 2009.1
Tackling the worsening poverty situation is one of the current government’s main anchors along
with good governance. Good governance is the main instrument in fighting poverty (NAPC Part
1, 2011). The current administration’s national anti-poverty program’s centerpiece is Pantawid
Pamilyang Pilipino Program (4Ps) or what is commonly-known as the conditional cash transfer
(CCT) program. Other current poverty reduction programs include the subsidized health
insurance coverage, supplemental feeding program, the food for work program, rice subsidy
program, the SEA-K and the KALAHI-CIDSS among others.
To prove the serious intent of the government to fight poverty, the social services allocation is
already 34.1 percent of the total budget wherein the first priority is to provide the basic income,
food and nutrition, health and education needs of the poor (NAPC Part 2, 2011). Among the
various programs, the 4Ps by far is the most comprehensive and most controversial because of
the huge amount the government is spending for this. This paper is devoted to discussing briefly
what the 4Ps is and how it has been implemented since its inception in 2007, identifying some
of the issues related to its design and implementation, and offering some recommendations.

Aquino administration socio-economic policies on land distribution….

Land reform in the Philippines has long been a contentious issue rooted in the Philippines's ... In
1901 93% of the islands' land area was held by the government and William Howard Taft, ....
and, in pursuance of those policies, established the following ... Palace to demand genuine land
reform from Aquino's administration.

The Save Agrarian Reform Alliance (SARA), a network of national farmers’ organizations,
rural women, non-government organizations (NGOs) and agrarian reform beneficiaries pushing
for the immediate, effective, substantive and just implementation of agrarian reform in the
country, launched a series of ground consultations and survey in 2012 to assess the
implementation of CARPER, and agrarian reform in general. This report contains data and
information directly culled from the experiences of agrarian reform beneficiaries and advocacy
organizations in various provinces of Luzon, Visayas and Mindanao. Official government data
were also used.

Based on these field accounts, what has emerged is a picture of implementation characterized
by paralysis and the retreat of agrarian reform resulting from the following: Department of
Agrarian Reform’s (DAR) lackluster performance; a ‘legally conservative’ secretary; budget
cuts; efforts by landowners and anti-agrarian reform forces to subvert and block land
redistribution; and an ineffective bureaucracy that has not functioned with the sense of urgency
needed to complete land distribution by June 2014. The non-completion of the Comprehensive
Agrarian Reform Program Extension with Reforms (CARPER) law or RA 9700 will affect
more than a million Filipino farmers.

The Philippine Educational System

Education System in the Philippines. Elementary school covers the first six years of compulsory
education (grades 1–6) informally divided into 3 years of primary level and 3 years of
intermediate level. Secondary education consists of four levels largely based on the American
schooling system

K-12 is a program that covers kindergarten and 12 years of basic education to provide sufficient
time for mastery of concepts and skills, develop lifelong learners, and prepare graduates for
tertiary education, middle-level skills development, employment, and entrepreneurship.
Public schools in the Philippines. Most local Filipino children attend public schools, which are
funded by the government and free to attend. The quality of education at public schools remains
poor. Classes are big, teaching material is lacking and teachers are poorly paid.
The K to 12 Program covers Kindergarten and 12 years of basic education (six years of primary
education, four years of Junior High School, and two years of Senior High School [SHS]) to
provide sufficient time for mastery of concepts and skills, develop lifelong learners, and prepare
graduates for tertiary education
Open Merit based recruitment and selection is defined as the system of appointing employees
based on their ability to do the job, assessed against objective selection criteria which do not
discriminate against or give preference to any group or individual. The Act provides a definition
of merit as it relates to the APS Value of merit-based employment decisions. The Act states that
a decision relating to promotion and engagement is based on merit if: an assessment is made of
the relative suitability of the candidates for the duties using a competitive selection process.
Merit system. The merit system is the process of promoting and hiring government employees
based on their ability to perform a job, rather than on their political connections. It is the
opposite of the spoils system. Merit selection is a way of choosing judges that uses a
nonpartisan commission of lawyers and non-lawyers to locate, recruit, investigate, and evaluate
applicants for judgeships.
Compare civil service and the merit principle. Passed in 1883, an Act that created a federal civil
service so that hiring and promotion would be based on merit rather than patronage. A system
of hiring and promotion based on the merit principle and the desire to create a nonpartisan
government service.
The merit system is the process of promoting and hiring government employees based on their
ability to perform a job, rather than on their political connections. It is the opposite of the spoils
system.
On the other side of the coin is merit-based aid. Merit includes a variety of talents and interests:
academic, artistic, athletic, and the list goes on. Scholarships are the most common type of
merit-based aid (though some do have a need-based component), which may come from the
school or from outside sources.
Merit system. The merit system is the process of promoting and hiring government employees
based on their ability to perform a job, rather than on their political connections. It is the
opposite of the spoils system.
Specialization to job description based on scientific management
The scientific management approach propounded by F.W. Taylor is based upon the following
four principles:

(1) Science, Not Rule of Thumb:

This principle says that we should not get stuck in a set routine with the old techniques of doing
work, rather we should be constantly experimenting to develop new techniques which make the
work much simpler, easier and quicker.
(2) Harmony, Not Discord:
As per this principle, such an atmosphere should be created in the organisation that labour (the
major factor of production) and management consider each other indispensable.

Taylor has referred to such a situation as a ‘Mental Revolution’. Taylor firmly believed that the
occurrence of a mental revolution would end all conflicts between the two parties and would be
beneficial to both of them.
3) Cooperation, Not Individualism:

According to this principle, all the activities done by different people must be carried on with a
spirit of mutual cooperation. Taylor has suggested that the manager and the workers should
jointly determine standards. This increases involvement and thus, in turn, increases
responsibility. In this way we can expect miraculous results.
(4) Development of Each and Every Person to His / Her Greatest Efficiency and Prosperity:

According to this principle, the efficiency of each and every person should be taken care of
right from his selection. A proper arrangement of everybody’s training should be made.

It should also be taken care that each individual should be allotted work according to his ability
and interest. Such a caring attitude would create a sense of enthusiasm among the employees
and a feeling of belongingness too.
8 Essential Features of Scientific Management
Based upon the above definitions, the following are the main characteristics of scientific
management:

(1) Systematic Approach:

Scientific management is a systematic approach to management and its use ensures that all
activities are completed in a systematic and scientific manner.
(2) Brings Complete Mental Change:

Scientific management brings about a complete mental change both in the owners as well as the
employees of the organisation. Both the parties start aiming for more and better production
targets rather than merely chasing higher profits.

They are able to comprehend that increased and better production will automatically result in
higher profits which will benefit both the parties. This change in attitude is indeed very
significant.
(3) Discards Traditional Management:

The approach of scientific management completely discards traditional management. It calls for
the discarding of old techniques and adoption of new and modern techniques, with the aim of
improving the efficiency of employees. This is nothing but the outcome of complete change in
attitude.
(4) Requires Strict Observance of Rules:

Scientific management requires very strict observance of rules, because the rules are formed
only after due analysis and there is very little chance of error in them. Unless the rules are
followed strictly the scientific tinge given to management may fade away making it no different
from the traditional management.

(5) Improves the Efficiency of Workers:

The main aim of scientific management is to increase the efficiency of workers. This is done
through conducting various kinds of studies such as time study, motion study and fatigue study.
This makes scientific management almost a tool for the enhancement of workers’ efficiency
whose benefit ultimately goes to the organisation itself.

(6) Gives due Weightage to Specialisation:

Scientific management involves dividing each work into various small parts, each part being
allotted to the person who is an expert in it. This results in better and more work being
performed in much less time.

Hence, it can be said that scientific management gives due weight age to specialization.
Undoubtedly, the force of specialization sweeps away all the dirt and wastage generated by the
old and traditional way of performing any job. The obvious advantages are the better
performance and still better results.
7) Useful for Large Organizations:

Since the scientific management system is quite expensive to implement, it is useful only for
larger organizations. Time is not far when this extensive nature of scientific management is
made less costly for small organizations.

(8) Attempts to Minimize Wastes:

Scientific management aims at minimizing the waste of time, materials, machine, etc. This is
indeed very essential to achieve higher level of performance and easier and quicker way to
achieve goals.
The German sociologist Max Weber argued that bureaucracy constitutes the most efficient and
rational way in which one can organize the human activity and that systematic processes and
organized hierarchies are necessary to maintain order, maximize efficiency, and eliminate
favoritism.

Six Characteristics of Bureaucracy

Reviewed by: Jayne Thompson, LLB, LLM
Written by: Laura Reynolds Updated November 21, 2018

Max Weber was a Renaissance man in a changing world. Educated in law, history, philosophy
and economics, he became one of the founders of the modern science of sociology – the study
of society and its institutions. Weber defined modern bureaucracies as goal-oriented
organizations that shared six characteristics. All were hierarchies with written rules and a
specialized division of labor, where advancement was based on achievement, resulting in an
efficient and impersonal organization.

A Formal Hierarchical Authority

Weber's theories, developed at the turn of the 20th century, helped define the economic and
political systems emerging from the highly concentrated authority of hereditary rulers and their
supporters. They defined many 20th-century institutions. Power in bureaucracies is vested in
position, not person, and authority travels through the levels of the hierarchy based on agreed-
upon functions.

Management By Rules

Bureaucracies depend upon written rules and communication. Effective bureaucracies depend
on rules based on rational examination of problems and development of the most effective
method of accomplishing objectives. Successful bureaucracies regularly review organization
charts, employee policies, memos and methodologies – such as lean production techniques – to
refine procedures and policies and improve efficiency and consistency of result.

Division of Labor

Ideally, organizational tasks are assigned in bureaucracies according to the specialized skills of
the employees and the most efficient method of accomplishing goals. That's a lot of “ideality,”
and in many bureaucracies, rules and structures become rigid and employees end up defending
their job functions the way animals defend their turf. A well-designed organization develops
realistic job descriptions and evaluative practices to guide employees and encourage
collaboration rather than empire building.

Achievement-Based Advancement
As 20th century Europe urbanized, failures, such as the series of miscues following the
assassination of the Austrian archduke that led to World War I, contributed to the rise of
hierarchies based on competency. Advancement within or between the levels of bureaucracies
were based on achievement and competency rather than influence or favor, as in traditional
hierarchies. Meeting organizational and production goals benefit not just the bureaucracy but
also its customers, clients or those otherwise dependent on its work. The “publish or perish”
imperative, for example, measures achievement only when what is published enlarges
knowledge or aids the cause.

Efficient Operations

Efficiency was, Weber insisted, one of the hallmarks of a bureaucracy. This might include
harnessing technology in the office or factory, but it also applied to allocating resources and
determining the most efficient way of producing products, delivering services or otherwise
achieving the organization's goals. Regular evaluation of written rules and procedures,
employee effectiveness and job function are all parts of forging an efficient bureaucracy.

Impersonal Environment

Bureaucracies depend on job descriptions and merit-based advancement, which is an

improvement over feudal hereditary or charismatic absolutism. The emphasis on achievement
and efficiency, however, can lead to the inability to respond to individual situations or needs
and can concentrate power in the positions at the top of the hierarchy. Vigilance against
limitations caused by “red tape” help keep a bureaucracy efficient, and involving employees in
decision-making, evaluation and goal-setting at each level helps them become committed to
creating a responsive organization.

the Weberian bureaucratic model, which emphasized the value of efficiency, consistency, ....
According to Weber, “holding a position within the public service ... for life, together adequate
with salary and pension. ...... knowledge that comprise specialization and experience, a manager
has to ...
For a business owner, nepotism can be really difficult to deal with, considering all the ethics
that come with running a company. For an employee, it would seem terribly unfair, especially
when you have been diligently working to be promoted, which that never happened because a
company owner’s relative got pegged for the position. Putting positions aside, your capabilities
may be limited in eliminating nepotism, especially if we are talking about a privately owned
business. However, with valid reasons and concerns, this can be dealt with accordingly. With
proper observation and documentation, everyone will be able to go around this matter. Here are
ways to deal with nepotism in the workplace—for business owners and employees:

For Business Owners

1. Surround yourself with non-relatives.

Normally, you tend to pull family members or friends into your new or growing business. Of
course, you trust them, and you would not have to worry about these people stealing your trade
secrets or doing any harm to your venture. However, bringing in outsiders can give your
company different perspectives. Typically, relatives would not challenge any corporate decision
or direction, and take note that most successful businesses have bold people who can ask the
right questions and speak up.

2. Have a written guideline and enforce it.

Do not commit the mistake of not having any written procedures and policies, or else you will
face discrimination claims and unlawful termination lawsuits. See to it that your rules apply to
all individuals, including your relatives, and there should be no preferential treatment or
favoritism, as it would create resentment and division among your employees. It is also good to
have a nepotism policy that does not allow managers to have relatives as direct reports.

3. Require your employees to work their way up.

One thing about handing down your business to your spouse or child is that they may not want
the job when time comes. Worse, they may feel entitled to it and not do the work needed to earn
their positions. Remember that there are many cases of companies collapsing under second-
generation leadership. With this in mind, manage your relatives’ performance and make sure
they start at the bottom, learning about the business to the letter, and earn your other employees’
respect.

4. Make sure everybody earns the same.

As business owner, make sure your relatives earn the same as with other employees. You have
to establish equal benefits and compensation not only for budgeting, but also for employee
morale. Do not try to think that you can keep inequity in pay a secret, as workers talk and will
notice if your relatives have more from their salary to spend than they do. Have all job
descriptions written, including their pay grades, and review them regularly to ensure all the
terms written reflect job qualifications, compensation and responsibilities.

5. Take advantage of appropriate job training.

Remember that hiring family members and friends for work that they do not have any training
on for your company as a whole. Of course, nobody wants to fail, but you will leading them to
do just that by hiring them without proper and up-to-speed knowledge. This is another area
where having written job descriptions can greatly help; job descriptions should include
preferred and minimum educational requirements.

6. Get a mentor.
It would be difficult to separate being a close relative and a mentor when it comes to training a
family or friend. So, it might be best to enlist a non-relative and respectful individual to take on
the role of leading professional development of relative workers. You can even set up a good
cop-bad cop scenario, where you will play the bad cop to your relative (being extra tough to
demonstrate to the rest of your workforce that you will not have favoritism). Meanwhile, your
vice president or a partner can play the good cop to mentor your relative through his/her
improvement.

Nepotism and Racial Practices in the workplace — is it illegal?

During these challenging economic conditions, many companies are granting a hand to striving
family members or friends by giving them job opportunities. When we come to point our
fingers to other countries; one should never deny the facts that these great United States has a
legacy of Culture of “Nepotism” and under the covers racial practices in a workplace.
Customarily, in the private sector, nepotism (inequity directed solely or chiefly toward friends
or families notwithstanding of value) is indeed, at least, in my eyes illegal.

Favoritism at work is a form of discrimination. If proven, the employee may even have a right
to sue. Because there are several if any, laws that explicitly forbid nepotism. But there are
multiple laws, both state and federal, that ban discrimination. So, favoritism which sometimes
ties into “discrimination” fits right within that cycle.
Giving a family member or close friends opportunity who don’t know one’s duties or have
never done the job is disgusting. Denying people who have qualified a job just to give it to
friends and family members is tells it all about the employer. A company who sets merits like
these usually fails, miserably.

To ensure a separation of powers, the U.S. Federal Government is made up of three branches:
legislative, executive and judicial. To ensure the government is effective and citizens' rights are
protected, each branch has its own powers and responsibilities, including working with the
other branches.
THREE BRANCHES OF GOVERNMENT. Printer Friendly (PDF) Our federal government
has three parts. They are the Executive, (President and about 5,000,000 workers) Legislative
(Senate and House of Representatives) and Judicial (Supreme Court and lower Courts).

Checks and Balances. The Constitution divided the Government into three branches: legislative,
executive, and judicial. That was an important decision because it gave specific powers to each
branch and set up something called checks and balances.

To ensure a separation of powers, the U.S. Federal Government is made up of three branches:
legislative, executive and judicial. To ensure the government is effective and citizens' rights are
protected, each branch has its own powers and responsibilities, including working with the
other branches.
The Constitution created the 3 branches of government: The Legislative Branch to make the
laws. Congress is made up of two houses, the Senate and the House of Representatives. ... The
Judicial Branch to interpret the laws.

Woodrow Wilson defined public administration as a detailed and systematic execution of public
law, he divided government institutions into two separate sectors, administration and politics.

In the United States of America, Woodrow Wilson is considered the father of public
administration. He first formally recognized public administration in an 1887 article entitled
"The Study of Administration". ... Separation of politics and administration.
The Politics-administration dichotomy is a theory that constructs the boundaries of public
administration and asserts the normative relationship between elected officials and
administrators in a democratic society.[1] The phrase politics-administration dichotomy itself
does not appear to have a known inventor, even after exhaustive research, the combination of
words that make up the phrase was first found in public administration literature from the 1940s
with no clear originator.[2]
Woodrow Wilson is credited with the politics-administration dichotomy via his theories on
public administration in his 1887 essay, "The Study of Administration". Wilson came up with a
theory that politics and administration are inherently different and should be approached as
such.[3] Wilson wrote in his essay in regards to public administration: “The field of
administration is a field of business. It is removed from the hurry and strife of politics....
Administration lies outside the proper sphere of politics. Administrative questions are not
political questions. Although politics sets the tasks for administration, it should not be suffered
to manipulate its offices.”[4] With these words, Wilson started a debate that has been going on
for decades and continues to this day. The politics-administration dichotomy is an important
concept in the field of public administration and shows no signs of going away because it deals
with the policy-makers role as an administrator and the balancing act that is the relationship
between politics and administration.[5] This essay is considered to be the first source to be
analyzed and studied in the public administration field.[6] Wilson was primarily influenced by
Richard Ely and Herbert Adams who taught at Johns Hopkins University.[7]
Woodrow Wilson’s politics-administration dichotomy can potentially be substantial in
sustaining a strong productive government. The complexity, difficulty level and ample
multiplication of governmental functions can be seen as a main component in the cause to
implement the politics-administration dichotomy. Due to Wilson's lack of faith in republican
self-government and the overwhelming amount of “selfish, ignorant, timid, stubborn, or
foolish” persons whom the “bulk of can vote,” this model provides a solution that would
counteract the majority of the incumbent voters. By employing the elite philosophical leaders to
improve, shape, condition and sway public opinion, politics-administration dichotomy, if
carried out in an unselfish manner leaves little to no room for error.
Criticism[edit]

Standard definition is too narrow . If politics includes all of what we know as policy making,
then the dichotomy would bar administrators, presumably including city managers, from
participation. The dichotomy of policy and administration was a conceptual distinction
underlying a theory of democratic accountability. It was not intended to guide behavior, it was
intended as a behavioral prescription directed against contemporary practices of machine
politics.[11] The strict definition is the model. It is not conceptually possible to have a one way
dichotomy that keeps elected official out of administration but allows administrators to be
active in policy. The dichotomy model standing alone is an aberration.[1]
The Local Government Code is a fulfilment of the provision of the 1987 Philippine
Constitution, which provides among others, that Congress shall enact a local government code
that will institutionalize a system of decentralization (Sec. 3) whereby local government units
shall be extended more power, authority, ...

Issues and Problems in Decentralization and Local Autonomy in the Philippines: An Assessment of Impact and the Challenge of Federalism
The decentralization of highly centralized and rigid systems of government in the aftermath of the colonial periods has been the response towards
improving the delivery of public services and the management of public affairs among newly-independent nations.
“There is today the acknowledged consensus that decentralization has become “an almost universal feature of modern states,” and that “almost all
countries are on the wave of decentralization” (Lee, 1996: 102)
Along these lines, the Philippines embarked on launching an extensive and comprehensive decentralization policy in 1991 framed within the context
of devolution and local autonomy to local government units (LGUs).
After decades of failed embryonic decentralization and local autonomy policies, an all-embracing law was enacted under Republic Act No. 7160,
otherwise known as the “Local Government Code of 1991” as approved on October 10, 1991.
• This Study seeks to provide cursory analysis and assessment of issues in the performance of Local Government Units in the Philippines in light of
this statute.
• It later looks at the nature of the Federal system and its challenge in the Philippines.
The intent of the Local Government Code of 1991 is to strengthen the capabilities of local government as front-line governments and to address
critical gaps in the delivery of services in habitually neglected areas, particularly in aspects of poverty alleviation and in stimulating development
activities.
As the Code observed its 25th year in 2016, its impact on poverty alleviation and other aspects of local governance, as well as the performance of
local government units, has become compelling.
• The Local Government Code is a fulfilment of the provision of the 1987 Philippine Constitution, which provides among others, that Congress shall
enact a local government code that will institutionalize a system of decentralization (Sec. 3) whereby local government units shall be extended more
power, authority, responsibilities and resources.
• The Code covers a vast and bulky enumeration of policies and mandates provided in four books divided into 536 sections to transform local
government units into self-reliant communities.
It isSeveral basic services and facilities have been devolved to LGU: agricultural extension and on-site research, community-based forest projects,
field health and hospital services, public works and infrastructure projects derived from local funds, school building programs, social welfare
services, tourism facilities, housing projects for provinces and cities and such other services pertaining to industrial support.
• The regulatory powers, on the other hand, devolved to the LGUs include: the reclassification of agricultural lands, enforcement of environmental
laws, inspection of food products, quarantine, enforcement of the national building code, operation of community public utility conveyances
(tricycles), processing and approval of subdivision plans and the establishment of cockpits and the holding of cockfights. a complex codified body of
legislation that capture the many facets and aspects of local governance.
Based on a rough and preliminary assessment, the following could be identified as some of the recognized salutary gains of the LGC during the last
25 years: 1. Grassroots empowerment and greater citizens’ participation in the communities.
2. Greater Involvement of Civil Society and People’s Organizations and the Private Sector in Policy-making and in the Management of Public
Affairs.
3.The Rise and Strengthening of Inter-local Cooperation Through the Establishment of Leagues of Local Government Units and Elective Officials.
4. Consciousness on the Rights of Local Government Units and Greater Transparency.

5. Recognition of Best Practices under the Galing Pook Awards (Excellent or Best Localities)
Program.
6. Anti-Poverty and Development Initiatives are systematically being launched at the Local
Levels.
THE CHALLENGES TO LGUs: • THE PROBLEMATIC OF IMPLEMENTATION
1. The Problematic of the Absorptive Capacities of LGUs has not Matched the Demands of
Responsibilities Entrusted by the Code.
2. Many Local Governments Continue to be Dependent on their Shares of the Internal Revenue
Allotment.
3. The Financial Capacities of LGUs Leave Much to be Desired.
4. The National Government Continues to hold and control the Bulk of Productive Sources of
Revenue even in the Post-Code period.
5. There is a Wide Disparity in the Distribution of Government Personnel Between the National
Government and the LGUs.

6. The Poverty Incidence has not been contained.

It is however conceded here that there are still many issues that need to be addressed and which
this brief and passing overview have not sufficiently covered.
There is therefore now a compelling agenda to scrutinize and examine more attentively the big
issues and big questions on why local autonomy is not working within the ideals and aspirations
that it was supposed to fulfill.
• A major agenda today in the continuing efforts towards greater decentralization is the
installation of a Federal system of government in the Philippines.
• “Federalism is a system of government in which entities such as states or provinces share
power with a national government” (https://www.vocabulary.com/dictionary/federalism). • “A
system of government in which power is divided between a national (federal) government and
various regional governments” (http://www.dictionary.com/browse/federalism).
• Federalism is also described as “a principle of government that defines the relationship
between the central government at the national level and its constituent units at the regional,
state, or local levels.”
“Under this principle of government, power and authority are allocated between the national
and local government units, such that each unit is delegated a sphere of power and authority
only it can exercise, while other powers must be shared.” (http://legal-
dictionary.thefreedictionary.com/federalism ).
• US Supreme Court Justice Hugo Black wrote that Federalism meant:
“a proper respect for state functions, a recognition of the fact that the entire country is made up
of a Union of separate State governments, and a continuance of the belief that the National
Government will fare best if the States and their institutions are left free to perform their
separate functions in their separate ways” (http://legal-
dictionary.thefreedictionary.com/federalism)
The strongest arguments and justifications for a federal system were written during the
ratification of the American Constitution. • A set of 85 political essays in defense of federalism,
The Federalist Papers, were written by the founding fathers of the United States, Alexander
Hamilton, James Madison, and John Jay and published in New York in 1787.
• These essays were intended to justify the setting of a federal state, and extol the principles of
popular sovereignty (http://legal-dictionary.thefreedictionary.com/federalism)
• The allocation of powers and authority between the Federal and state governments has always
been contentious in the United States.
• But the federal system is considered as an antidote designed to frustrate the concentration of
power in the national government or in any institution.
•

Strategic Planning

The income gap is too wide for our own good. Here are seven ways that can and should change:
1. Break down the social barriers
One of the reasons income inequality persists, says Michael Norton, an associate professor at
Harvard, is that people don't realize how wide the gap between rich and poor has become.
Credit masks poverty, and most of us are stuck in an income bubble -- we tend only to see and
associate with people who are like us, economically.
A solution: We should get out of our collective comfort zone and create conversations across
the income divide. Willis, the young woman in Lake Providence, says she wants to come back
to her hometown to build a bridge across the lake that largely separates the richer folks on the
north from the poorer folks on the south. If they talked more, they might support policies to
help each other.
2. Improve public schools; unify them
There's no surer ticket out of poverty than a solid education. But that education has to be
affordable (modern college isn't) and it has to be equally distributed. It would be impossible to
argue that's true of America's public schools, which are supported by property taxes. Big houses
equal better schools. And poorer kids, of course, lose out. That's a tragedy, and leads, according
to a recent Stanford study, to poorer students who are years behind their richer peers.
3. Raise the minimum wage to all levels, at least
The fast-food workers are right: It's impossible to live on today's minimum wage, which is
substantially lower, when adjusted for inflation, than it was before.

Trade and comparative advantage in terms of labor and natural resources.

The Law of Comparative Advantages in International Trade. ... Instead, comparative advantage
focuses on which manufacturer produces goods with the least opportunity cost. This occurs
when a producer possesses ample natural resources or a superior supply chain.
Comparative advantage is an economic term that refers to an economy's ability to produce
goods and services at a lower opportunity cost than that of trade partners.

Comparative advantage. ... In an economic model, agents have a comparative advantage over
others in producing a particular good if they can produce that good at a lower relative
opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade.
A country with an absolute advantage can sell the good for less than the country that does not
have the absolute advantage. Absolute advantage differs from comparative advantage, which
refers to the ability to produce specific goods at a lower opportunity cost.

The theory suggests that by conducting trade economies benefit from reduced production costs
and better goods and services. By producing comparative advantage goods, nations supply
society's demands and allocate resources in the most efficient way possible.

Comparative advantage refers to the ability of a party to produce a particular good or service at
a lower opportunity cost than another. Even if one country has an absolute advantage in
producing all goods, different countries could still have different comparative advantages.
In international trade, it is not possible for a country to have a comparative advantage in the
production of all goods. One country can, however, have an absolute advantage in producing all
goods
 Pointers for Bridging Leadership – PA 615
Theory U and its process
Bridging leadership Framework

 Home Theory U - Leading from the future as it emerges

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Free Courses & "Theory U - Leading from the future as it emerges" sounds a bit esoteric
Resources and "out there". I have thought long and hard about including this material
partly because I have struggled with some of Otto Scharmer's concepts and
 Free Guide the way he attempts to explain them, and partly because I am not sure how
 8 Free lessons receptive visitors to this site will be to this material.
 Articles &
Comments
 Insights
Su
On-Site Themes
1. Starting
 Overview
 Definition
 Workplace
 Starting
 Assistance
2. Leadership
 Leadership
 Theory
 Inspire
 Motivate
 MBTI
3. Practise
 Strategy


However, I intuitively feel that what he has to say has direct relevance to
strategies for managing change - and in particular to the creative process of
leadership.

Here are Otto Scharmer's ideas presented in his own language and taken
from a 2 page summary available on his site. Is your
overwh
I have added some personal observations and comments which are sited
below the executive summary that follows.

Theory U - Executive Summary

In his latest book "Theory U: Leading from the Future as It Emerges"

(Cambridge, MA: Society for Organizational Learning, 2007), Otto
Scharmer introduces readers to the theory and practice of the U process,
based on a concept he calls “presencing.”

This is a blend of the words “presence” and “sensing,” presencing signifies

a heightened state of attention that allows individuals and groups to shift the
inner place from which they function. When that shift happens, people
begin to operate from a future space of possibility that they feel wants to
emerge.
Being able to facilitate that shift is, according to Scharmer, the essence of
leadership today.

At the end of the 17 page Executive Summary shown in the link further
down this page you will find more complete coverage of how Theory U is
being used by numerous stakeholders and corporate innovators, and
information on how you might become involved with the Presencing
Institute to which there is also a link below.

Using his experience working with some of the world’s most accomplished
leaders and innovators, Otto Scharmer shows in Theory U how groups and
organizations can develop seven leadership capacities in order to create a
future that would not otherwise be possible.

Tapping Our Collective Capacity

We live in a time of massive institutional failure, collectively creating

results that nobody wants. Climate change. AIDS. Hunger. Poverty.
Violence. Terrorism. Destruction of communities, nature, life — the
foundations of our social, economic, ecological, and spiritual well-being.
This time calls for a new consciousness and a new collective leadership
capacity to meet challenges in a more conscious, intentional, and strategic
way. The development of such a capacity would allow us to create a future
of greater possibilities.

Illuminating the Blind Spot

Why do our attempts to deal with the challenges of our time so often fail?
Why are we stuck in so many quagmires today? The cause of our collective
failure is that we are blind to the deeper dimension of leadership and
transformational change. This “blind spot” exists not only in our collective
leadership but also in our everyday social interactions. We are blind to the
source dimension from which effective leadership and social action come
into being.

We know a great deal about what leaders do and how they do it. But we
know very little about the inner place, the source from which they operate.
And it is this source that “Theory U” attempts to explore.

The U: One Process, Five Movements

When leaders develop the capacity to come near to that source, they
experience the future as if it were “wanting to be born”— an experience
called “presencing.” That experience often carries with it ideas for meeting
challenges and for bringing into being an otherwise impossible future.
Theory U shows how that capacity for presencing can be developed.

Presencing is a journey with five movements:

(1) CO-INITIATING: Build Common Intent stop and listen to others and to
what life calls you to do

(2) CO-SENSING: Observe, Observe, Observe go to the places of most

potential and listen with your mind and heart wide open

(3) PRESENCING: Connect to the Source of Inspiration and Will, go to the

place of silence and allow the inner knowing to emerge

(4) CO-CREATING: Prototype the New in living examples to explore the

future by doing

(5) CO-EVOLVING: Embody the New in Ecosystems that facilitate seeing

and acting from the whole

Theory U 5 Movements
As the diagram illustrates, we move down one side of the U (connecting us
to the world that is outside of our institutional bubble) to the bottom of the
U (connecting us to the world that emerges from within) and up the other
side of the U (bringing forth the new into the world).

On that journey, at the bottom of the U, lies an inner gate that requires us to
drop everything that isn’t essential. This process of letting-go (of our old
ego and self) and letting-come (our highest future possibility: our Self)
establishes a subtle connection to a deeper source of knowing.

The essence of presencing is that these two selves— our current self and our
best future Self — meet at the bottom of the U and begin to listen and
resonate with each other.

Once a group crosses this threshold, nothing remains the same. Individual
members and the group as a whole begin to operate with a heightened level
of energy and sense of future possibility. Often they then begin to function
as an intentional vehicle for an emerging future.

Seven Theory U Leadership Capacities

The journey through the U develops seven essential leadership capacities.

(1) Holding the space of listening

The foundational capacity of the U is listening. Listening to others.

Listening to oneself. And listening to what emerges from the collective.
Effective listening requires the creation of open space in which others can
contribute to the whole.

(2) Observing

The capacity to suspend the “voice of judgment” is key to moving from

projection to true observation.

(3) Sensing

The preparation for the experience at the bottom of the U [presencing]

requires the tuning of three instruments: the open mind, the open heart, and
the open will. This opening process is not passive but an active “sensing”
together as a group. While an open heart allows us to see a situation from
the whole, the open will enables us to begin to act from the emerging
whole.

(4) Presencing

The capacity to connect to the deepest source of self and will allows the
future to emerge from the whole rather than from a smaller part or special
interest group.

(5) Crystallizing

When a small group of key persons commits itself to the purpose and
outcomes of a project, the power of their intention creates an energy field
that attracts people, opportunities, and resources that make things happen.
This core group functions as a vehicle for the whole to manifest.

(6) Prototyping

Moving down the left side of the U requires the group to open up and deal
with the resistance of thought, emotion, and will; moving up the right side
requires the integration of thinking, feeling, and will in the context of
practical applications and learning by doing.

(7) Performing

A prominent violinist once said that he couldn’t simply play his violin in
Chartres cathedral; he had to “play” the entire space, what he called the
“macro violin,” in order to do justice to both the space and the music.

Likewise, organizations need to perform at this macro level: they need to

convene the right sets of players (frontline people who are connected
through the same value chain) and to engage a social technology that allows
a multi-stakeholder gathering to shift from debating to co-creating the new.
Theory U Encourages You to Step into the Emerging Future.

Examples of these seven Theory U leadership capacities can be found in a

number of multi-stakeholder innovations and corporate applications. The
Presencing Institute is dedicated to developing these new social
technologies by integrating science, consciousness, and profound social
change methodologies.

Theory U - Personal observations...

In my view, what Scharmer is talking about here with his Theory U is a

more intuitive approach to leadership - and specifically in group leadership
situations.

There is nothing new in the idea of a creative thought and action process
based around mental stillness, active listening, reflection, emergent intuitive
ideas, and driving an initiative through an iterative process of successive
prototypes.

The world of IT has been doing this with the Rapid Application
development [RAD] methodology for years.

The appropriate balance of action/inaction has been familiar to practitioners

of the Tao, Zen and many other meditation techniques for centuries.

Some of the disciplines and processes he talks about will be alien to some -
maybe many - business people and his "soft", qualitative, quasi-spiritual
language is off-putting.

But the fundamentals of what he proposes in Theory U are not new - as far
as I can see. In my view, the originality may lie in applying this in a group
context and a business environment.

Taken from other perspectives it all makes sense. For example anyone
involved in the creative arts will employ some or most of these processes.

Neurologically this all about developing and using a "balanced brain"

approach to leadership. By that I mean allowing more use of the right brain
faculties of lateral, creative, and innovative thinking and less analysis,
filtering and judgement.

[Edward deBono and others have covered this turf before with "lateral
thinking" and "six hats thinking" .]

From a scientific perspective we are into the realm of quantum physics and
a perspective of a universe that is comprised of pure energy: that "solid"
manifestations of matter "emerge" from the energy field of "infinite
possibilities"; that thought [in whatever form] is energy and as such
interacts, influences and responds to that energy field of infinite
possibilities. As per the well known "observer effect" - where the act of
observation influences the outcome of the experiment.

Philosophically, we are into the realms of Buddhism in general, Zen in

particular and especially the practise of "mindfulness" - or "present moment
awareness". [For more on this see Eckhart Tolle - "The Power of Now"]

To put Theory U into practise in a business context requires a leader who is

comfortable with and capable of initiating this process, and a culture that is
receptive to it.

# Use of language and terminology

By the nature of the subject matter of Theory U it is hard to articulate this

stuff without it sounding like some sort of religious or "belief based"
experience. I wish Scharmer expressed himself more in the reductionist
terminology of the neurology and physiology of his subject.

So for example, if we examine the following paragraph copied from the

Theory U summary above - I have highlighted what I regard as quasi
spiritual phraseology that is not part of conventional business vocabulary:

"On that journey, at the bottom of the U, lies an inner gate that requires us
to drop everything that isn’t essential. This process of letting-go (of our old
ego and self and letting-come (our highest future possibility: our Self)
establishes a subtle connection to a deeper source of knowing."

This is a business site specialising in the leadership and management of

change in business and organisations, and these type or words are - at first
sight - more suited to the Zen Buddhist meditation hall. For a Buddhist or
anyone involved in any serious form of meditation practise - these are
familiar concepts.

My concern is that our scepticism and cynicism may cause us to "filter out"
what he is trying to say in Theory U because this is unfamiliar territory to
many us and unfamiliar language.

Having got that off my chest I do have a strong intuitive sense that Theory
U is actually deeply significant and relevant to the leadership of
transformational change.

# Consciousness and outcomes

Scharmer says that:

"...successful leadership depends on the quality of attention and intention

that the leader brings to any situation.

Two leaders in the same circumstances doing the same thing can bring
about completely different outcomes, depending on the inner place from
which each operates."

If we substitute the words "focus and purpose" for the words "attention and
intention" this becomes a more accessible idea. But do we really buy into
the idea that a leader's "focus and purpose" [or thoughts and energy] really
can change outcomes?

Do we buy into the idea that "how we are" [i.e. the sum of all the
inexpressible and intangible aspects of our make up as human being]
actually affects events and outcomes in the "external" world?
 In my view:

Theory U is about consciousness and how the level of consciousness we

experience has a direct bearing on the quality and effectiveness of our
leadership and management of change situations.

# Listening - Observing - Sensing

Scharmer's Theory U ideas about "Holding the space of listening" and

"Observing" and "Sensing" make sense to me from the context of a
meditation practise and it can be very powerful. But I have never used or
experienced this in a group business context.

Let me explain briefly how this works in meditation groups and see how it
may be used in business.

 There will usually be a brief period of silence in which people just calm
themselves and their minds and get centred. An easy way of achieving
this is focus on the in breath and the out breath for 5 or 10 mins.
 Then a passage from a book will be read, or a short talk or presentation
listened to in silence and without interruption.
 Then what we call "deep listening" is practised [see table below for
specific description of deep listening]. The group sits in silence until
someone feels they have something to say or share - this may or may not
be triggered by the passage read or presentation. This is NOT about what
someone's head tells them to say - but about something that [for want of a
better expression] their heart tells them to say - or that just feel intuitively
that they want to say or share.
 There is usually a pre-agreed signal that a person wants to speak e.g. a
nod of the head to the group.

The keys to this process are that the person speaking "holds the floor"
while everyone else listens deeply and without comment or interruption.

 When the speaker has finished speaking, they indicate to the group that
they have finished by a pre-agreed signal e.g a nod of the head.
 The group do not all rush in with an immediate response but pause for a
few minutes until someone else FEELS or senses [rather than thinks] they
also have something to share.
 The next contribution may come fairly quickly or maybe there is silence
for 2, 5 or even 10 minutes. It doesnt matter if there is a silence and it
does not feel awkward as it would in a conventional discussion.
 The group continue sharing in this way until the leader indicates that the
alloted and pre-agreed timeframe for the meeting is due to expire in 5
minutes, and asks if there are any further contributions. Then the session
ends and the group reverts to "normal" converational exchanges.

Why this is powerful if that people speak far more intuitively and directly
from a deeper or higher part of themselves and the quality of the
contributions is generally far deeper and more insightful.

Also, it leads to greater mutual respect and breaks down barriers and
prejudices between people.

So personally, I feel that this process could be applied to a business setting,

and I assume that this is [or is similar to] the process that Scharmer is
referring to in Theory U?

Deep Listening is...

 Being “fully present” – focused totally in the present moment.
 Hearing beyond the spoken words to their essence and to the feelings
behind them.
 In a state of present moment awareness where your mind is not cluttered
with past judgments or thoughts of the future.
 You're not analysing or figuring it out, you're simply letting the feelings
and sounds affect you.
 You feel no urgency or impatience, and you let go of beliefs and
prejudices you may have about the other person.
 You stay aware of the feeling between you and the person who is
speaking. If it's heading toward judgment, irritation or impatience, then
you've moved out of the moment and out of deep listening. You bring
your awareness back to the feeling of genuine interest in the other person.
# Analysis /Thought vs Awareness /Creativity

Or, to put it another way, if we look at this purely from a neurological and
physiological level [i.e. the circuitry and "hardwiring" of our brains] then
this is all about the interplay of thought and awareness - the interplay
between left brain analysis and right brain creativity - and learning how to
consciously navigate between these 2 states.

As I said above, this is all very close to meditation practises and I know that
in personal life, learning how to turn my brain off, stop thinking, judging,
categorising etc is very calming and centring. I also know from experience
that the more sessions I have when I slow down and do this stuff - then I get
solutions, ideas and guidance, and far more easily and frequently.

However, I don't fully understand how he sees groups doing this and
applying Theory U - unless it along the lines of the deep listening process
outlined above. As I have already said, I have absolutely no direct
experience of trying any of this stuff in group situations in a business
context as he suggests - though I would love to try it sometime as I sense it
could be very powerful.

# Blindspots - sources of creation & innovation

I can also identify with and support what he says about what Theory U
refers to as "the blindspot" or the "source dimension" from which all great
leadership, good ideas and innovations emerge. I feel that here he is talking
about the creative process.

All great ideas and innovations come from an "unknown" and

"inexpressible " place - they just "come to us". I personally feel that there is
proven wisdom in the old spiritual saying: "seek and ye shall find" -
because I have to say that in my experience that is always the case.

If I set a serious intention or purpose then move into mental stillness then
the answers do emerge - especially if I uncouple my thinking mind and all
the filters and past experiences and interpretations that it brings to bear on
emerging ideas.
# Ideas emerge from stillness

Also I find that ideas emerge as a "sense" or a [non-emotional] feeling -

before they get translated into words and concepts. But again this is totally
consistent with the neurological sequencing of the brain.

In my experience, the 2 major difficulties with this are that (1) we have to
really genuinely want to seek - a casual, flimsy enquiry will not work - there
has to be serious emotional energy behind the question; and (2) we have to
be still enough to be able to hear the answer. The old biblical verse "Be still
and know that I am God" carries infinite more more truth than is
immediately apparent.

# Prototyping

I also love his Theory U concept of "prototyping" - taking an idea as it

emerges and running with it in prototype form without subjecting it to deep
thought and analysis. Then modifying it and shaping it to meet the stated
requirements through a number of iterations. This is an integral part of how
I work. This is not that dis-similar to the Rapid Application Development
[RAD] used on certain large I.T. projects.

# A stroke of insight....

If you find this Theory U stuff hard work or you feel resistant to it - try
coming back to it and reading it again later and maybe check out the links
above to Scharmer's site and some of the reviews of his work.

Also take a look at the section on this site on The Tao of Change and
especially the section with Jill Bolte Taylor called "A stroke of insight" as
 this explains the physiological and neurological basis of what Scharmer is
talking about.

Process theories of motivation - Personal needs drive behaviour

All Content Protected - Copyscape Online Plagiarism Scanner © Copyright

2009 - 2019 Stephen Warrilow

Bridging Leadership
Bridging leadership is a style of leadership that focuses on creating and sustaining effective
working relationships among key partners and stakeholders. By "bridging" different
perspectives and opinions often found across the breadth of different stakeholders, a common
agenda can begin to be developed and shared in order to find solutions to social and economic
problems.
Bridging Leadership is an approach to leadership for addressing complex social challenges.
These challenges:
Are beyond the capacity of one sector alone to
resolve; Need collaborative action of all sectors –
government, civil society, business and donors; Need sustainable solutions that are owned by
the diverse and multiple stakeholders.
INTRODUCTION

Macroeconomic governance includes two levels of decisive determinants which take part in the
designing of macroeconomic policies. The institutional frame fixes the constitutional
obligations and objectives of monetary and budgetary-fiscal policies, like price stability, high
levels of employment and growth, limited deficits... With respect of the institutional frame, the
second level concerns general principles for the conduct of macro-policies: macroeconomic
targets (unemployment, budget balance, inflation...), automatic rules or discretion, flexibility of
the policy mix around the constitutional objectives...

Macroeconomic governance and policy design depend, in a crucial way, on the vision regarding
to the long run properties of the economic system. For example, stochastic stationary regimes,
say disturbed economic systems with constant rate of growth, may possess strong regulatory
forces which anchor the system on a predetermined trend,1 and make rational expectations
reliable. In such regimes, which inspired the New Consensus Macroeconomics (NCM), the
economic governance only consists in stabilizing around the trend. On the other hand, there is
no predictable trend in non-ergodic regimes, with the result that people do not have full
confidence in their expectations, whether they make use of probabilities or not, and whatever
kind of probabilities they make use of. That is the starting point of the liquidity preference
theory, and of The General Theory. In these regimes, economic policy takes part in the
trajectory of the economic system.

The weakening of Keynesian ideas among mainstream economists stems from a misplaced
analysis of the relevance of demand policies in ergodic stationary regimes. Since automatic
adjustment towards a 'natural trend' is postulated (owing to the beneficial 'competitive forces')
in such regimes, monetary and fiscal policies may at best have some temporary effect, as New
Keynesianism pointed out in the presence of nominal rigidities. Hence, the sole valid goal that
monetary policy may target concerns inflation control so as to avoid excessive demand policies
that could degenerate into public debt, seigniorage and finally, inflationary penalties owed to
the inconsistency of discretionary policies. Moreover, budgetary and fiscal policy may involve
temporary or permanent effects on relative prices and real variables because of distortions on
the resources allocation process, which put the economic efficiency in opposition to the fiscal
redistributive laws on which the social order is based.

But the problem Keynes pointed out is not about aggregate demand management in ergodic
regimes, with the result that most of the critics addressed to Keynesian economics lack of
consistency. The paper aims to theorize the inadequacy of the New Consensus Macroeconomics
governance in non-ergodic regimes and to propose Keynesian principles of governance
including monetary, fiscal and budgetary instruments. Section 2 compares the two alternative
modelling principles within the usual four competitive macro-markets structure and discusses
on markets interactions, adjustment processes and equilibrium properties. Section 3 deals with
macro governance and economic policy issues. Section 4 concludes.

2. THE FOUR COMPETITIVE MACRO MARKETS STRUCTURE

This section first discusses the main implications of non-ergodicity with respect to the
macroeconomic adjustment process; then we formalize and compare the New Consensus and
Keynesian short run equilibrium behaviour within the usual four competitive macro-markets
structure.

2.1. Uncertainty, confidence and macroeconomic adjustment

Because they disagree about the long run properties, the New Consensus and Keynesian
Macroeconomics have distinct conceptions of the macrofunctioning of competitive markets.
The former believe in the existence of natural laws, which reduce uncertainty to some short run
phenomenon that does not matter in the long run (risk). The latter considers that the real world
evolves within a stronger kind of uncertainty, which is inconsistent with the idea that there is
any predetermined system trajectory. In such regimes, people may of course make expectations,
including rational expectations, but the meaning and usefulness of such forward looking
information is quite different form the one usually given to it. Keynesian rationality of
expectations could admit that people make the best use of all the available information, not that
the long run trajectory is foreseeable. Whatever the kind of probabilistic tools people might
make use of, they can not rationally consider their expectations as a sufficient basis for decision
making as regards the long run. That is the reason why Keynes thought that decisions actually
depend on the degree of confidence people have in the better previsions they can do (The
General Theory, ch. 12). That is the very reason why the liquidity preference makes sense, with
so heavy consequences for the macroeconomic adjustment process.

In ergodic competitive regimes, aggregate demand adjusts to the supply of goods, in the same
time that investment adjusts to the supply of saving, because nothing hinders the adjustment of
real wages and interest rate. If aggregate demand (and prices) decreases, the need for
transaction-money falls, and the rate of interest decreases, rising the demand and the price of
goods and moving the real wages towards their full employment level.2 But, in Keynesian
contexts, the magnitude of the decrease in interest rate (the so-called 'Keynes effect') and of any
positive real balance effect (people do not want to hold idle cash balances and therefore increase
the demand for goods) depends on speculative decisions concerning the demand for money,
with the result that income and employment finally depend on the degree of confidence of the
moment and its impact on the demand for money.3 Since nominal wages decrease does not
ensure positive effects on effective demand (and price index) either,4 there is no endogenous
correction of unemployment, and, furthermore, Keynesian unemployment has to be thought as a
situation where both real wages and interest rates meet a kind of threshold.5

2.2. Markets interactions and general equilibrium

Within the usual four macro-markets framework, general equilibrium supposes a set of
conditions which expresses suppliers and demanders plans. Because of the Walras law, three
markets only must be explicit. Moreover, since the money supply is assumed to be exogenous
for the moment, the general equilibrium conditions reduce to five: the supply and demand for
labour conditions, the supply and demand for goods conditions, and the market for money
clearing condition (see table 1).6

n is the relative variation in employment

w is the nominal wage relative variation

pª is the expected increase in prices till the next period

d is an exogenous term

y is the relative variation in volume of output

c represents exogenous technological factors

g is the relative variation in the government demand for goods

is the variation in the tax rate

a is the relative variation in the exogenous part of aggregate private demand

is the variation in the rate of interest

m is the relative variation in the quantity of money

We focus on the short run behaviour of the system, in the sense that the productive physical
stock of capital is assumed to be constant during the period. Hence, variables are expressed in
terms of relative variations from their initial value, excepting the rate of interest and the tax rate,
which are expressed as variations. All parameters are positive.
Furthermore, we suppose that labour contracts have been negotiated, at the starting point of the
period, on the basis of the expected rate of inflation for the current period (pª). Hence, if pª = p
(which is assumed to be true in the 'long run', as a result of rational expectations in ergodic
stationary regimes), inflationary shocks have no effect on employment (equation 1) and
production (equation 3), but in case of inflationary surprise (p pª), demand shocks influence
the level of employment through the prediction error (p pª).

The model lends itself to an analysis in terms of aggregate supply and aggregate demand.
Equations (4) and (5), which are similar to the IS-LM conditions, give the demand equation
y(p), which may be written as p(y):

Equations (1), (2) and (3) give the supply equation:

Resolution yields y and p, which permits to solve for n by (3), then w by (2), and finally by
(5). Remember that output variations do not really depend on current price index variations, but
on the current price index error of prediction, as clearly shows the supply equation.

In recent versions of the NCM (see Romer, 2000), monetary policy consists in controlling the
rate of interest rather than the quantity of money, which has to be considered as an endogenous
variable.7 In this case, output (y) is determined by the sole aggregate demand components
(equation 4). Then we can get n by (3), w by (2), p by (1) and finally m by the function LM
(equation 5), which actually is not required for determining real magnitudes.8 It is however
important to note that this demand led behaviour only may hold temporarily. Indeed, it can be
shown that if authorities set the rate of interest so as to avoid any price index error of prediction
(that is p = p ª), then the results are the same as in the case of exogenous money supply where m
is set so as to avoid errors of prediction (the interest rate remains in this case at the 'natural'
level). Since there can be no systematic prediction errors, but only stochastic ones, it is obvious
from table 1 that in the long run a) employment is exclusively determined in the market for
labour, b) output and interest rate are determined in the market for goods, conditionally to the
market for labour results, and c) money is necessary exogenous and governs the price index
behaviour, in accordance with the pure classical features.

Let now consider a context of Keynesian unemployment in which the rate of interest is
exogenously determined by the monetary authorities (which does not control it perfectly
however, especially if reductions are concerned; see below), and real wages have met an
exogenous threshold ( ) owing to workers resistance. The current wage may deviate from this
threshold when certain events occur, such as a change in unemployment rate or exogenous
disturbances, like in equation 2k of table 2 (where nf is the total labour force).

Another Keynesian fundamental topic is the liquidity preference, which can explain
unforeseeable shifts in the demand for money owing to the impact of uncertainty on the 'state of
confidence' (The General Theory, ch. 12). This specificity will be formally underlined through
considering hk as an exogenous variable which is subject to the volatility of expectations. 9 It has
heavy implications on monetary policy because it makes the central bank control of long term
interest rates questionable. When the monetary base is increased through lowering the short
term rates, lower long term bank rates in principle boost the demand for credit, provided the
liquidity preference do not shift too much. But an increasing liquidity preference may
conversely make banks able to sell more credit without having to reduce their interest rates, for
non-bank loans rates in this case tend to rise in order to compensate the increasing liquidity
preference. Moreover, the liquidity trap may also block the transmission process in case of
generalized 'bearishness'. For these reasons, the NCM optimal monetary rule, which assumes
that authorities always may adjust the rate of interest to the natural level, is irrelevant in a
Keynesian context.

Interestingly, from a formal point of view, the model of table 2 looks very much like the NCM
model with endogenous money, especially when the labour force is constant in the short run (nf
= 0), as it is usually assumed. Here again, output (y) is determined by the sole aggregate
(effective) demand (equation 4), n by the production function (3), conditionally to the output
level, w by equation (2), p by equation (1) and finally m through LM. These similarities have
been a source of confusion for a long time, because they hide fundamental differences as
concerns the signification and properties of equilibrium.

In Keynesian regimes, aggregate demand has not only temporary effects; it matters in the long
run, and deficient effective demand may keep the economy away from full employment. In
addition, there is volatility of expectations, and therefore volatility of aggregate relations and
multiple possible equilibria and trajectories, since there is no objective anchor for them (no
foreseeable trend). It is also this kind of volatility that makes the control of the long term
interest rate, and therefore the role of monetary policy, questionable. More generally, it calls for
a quite different macroeconomic governance approach.

3. MACROGOVERNANCE PRINCIPLES AND MACROECONOMIC POLICIES

This section first presents the two competing macrogovernance approaches. The trials of
applying NCM principles of governance in non-ergodic contexts then are compared with a more
pragmatic Keynesian approach of macroeconomic policy.

3.1. Divergent governance principles

3.1.1. Controlling inflation

As shown in table 2, equation (1) may be written as a mark-up relation, which reveals the
distributive factors of inflation. These factors influence the rate of unemployment indirectly,
through the monetary policy they may induce. Indeed, monetary policy may limit inflation by
increasing the unemployment pressure on wages via higher rates of interest, so as to preserve
the confidence of the public regarding the value of money.

In other circumstances the central bank may prefer to let cost-pushed inflation develop in order
to preserve the economic activity, which supposes an increase of the money supply. Obviously,
even when increasing costs are the primary cause, inflation always is a monetary phenomenon
since it expresses higher monetary prices of goods and services. But whereas mainstream
economics incriminate irresponsible or lax policies, the Keynesian approach points out the
dilemma involved by distributive tensions. The former think that reducing monetary inflation
has no permanent cost in terms of unemployment, whereas it does for the latter, as far as
persistent tensions induce monetary authorities to maintain high interest rates.

3.1.2. Demand side policies

Because of the conviction that markets work as efficiently as possible in the long run,
mainstream economics pleads in favour of little discretionary freedom and strong monetary
control of inflation, which means avoiding excessive public debt and systematic temptation to
get 'extra output' by means of inflation surprises. On the demand side, monetary and fiscal
policies may be employed so as to reduce the output and price index volatilities around their
long run known trajectory (table 3). On the supply side, competitive distortions and other real
rigidities, which explain the gap between the natural level of activity and the full capacity level,
come under the competence of 'structural' policies.

Keynesian economics on the other hand states that the central bank imperfectly controls the
long term rate of interest, inflation and/or employment, and would redeem budgetary and fiscal
policy.11 Furthermore, since anti-inflation monetary policy may have depressive effects, income
policy is preferred in case of inflationary distributive conflict.
As concerns demand policies, in contrast with the automatic policy rules of the NCM, the
Keynesian approach suggests a pragmatic and progressive approach of discretionary
macroeconomic policy, where authorities carefully avoid destabilizing expectations and private
decisions, and therefore the whole aggregate system, because changing behaviours finally might
make the policy inappropriate (as popularized the Lucas critique).12

Discretion in this way means that governments fix intermediate reasonable targets in terms of
employment, price index and budget balance, according to the confidence they have in the
chance of success, which depends on the actual context and move with it. In table 4 below,
public expenditures are adjusted so as to reach the targeted unemployment rate; taxes are
adjusted so as to more or less limit the budget balance variation, depending on the relative
weight of unemployment compared with the budget balance. The central bank adjusts the rate of
interest (if it can do it) so as to more or less reduce the rate of unemployment, depending on the
relative weight of unemployment compared to inflation, which depends, among other things, on
income policy ability to appease distributive tensions. Within this framework, economic policy
yields a kind of flexible anchorage around full employment (µ may vary).

q is the variation in employment that is initially required for full employment (since n is the
variation in employment for the current period, q-n measures the level of unemployment at the
end of the period).

krepresents the 'monetary policy flexibility' (the higher k is, the more the central bank
concedes inflation in order to fight unemployment). It depends on the context; especially, but
not only, on the state of the distributive conflict.

µ is a parameter the government also chooses according to the context (effective demand
expected sensitivity to the policy instruments, financial constraints, public opinion and other
political considerations...).

b is the budget balance variation (relative to GDP);b (y g) + )(see appendix n°4).

k represents the 'fiscal policy flexibility' (the higher k is, the less the government adjusts
taxes, in order to preserve employment, and the higher is the deficit). It depends also on the
state of financial constraints, on the political acceptability of tax adjustments...

z represents other factors which may interfere in the short run (deliberate structural deficit due
to long run public investments, debt management considerations...).

In this perspective, economic-policy designing hinges as much on the selection of the objectives
(value of k and µ) as on the adjustment of instruments (value of g and which solve (9) and
(10), given equations (1), (2k), (3) and (4)).

3.2. New governance and Keynesian governance in non-ergodic regimes

3.2.1. Trials of the New Consensus Governance

As long as the government can adjust the two instruments (g, )(freely, there are three
instruments and three objectives. Solving the system of equations (1), (2), (3), (4), (6) and (7)
yields: p=n=b=0. Thus, the New Consensus governance gets the ideal outcome in terms of
prices, output and budget balance stabilization. There is a kind of 'symbiosis' between monetary
and fiscal policies.13

The symbiosis however may turn into severe drawbacks when the new governance principles of
table 3 are implemented into the non-ergodic system of table 2. In the presence of Keynesian
unemployment (q > 0), as long as actual unemployment and interest rates are interpreted as the
'natural' rates, they serve as macroeconomic policy targets, with the result that the policy mix
'symbiotically' anchors the system away from full employment: since they targeted n = 0, they
get q-n = q. The situation then may persist for it seems to be the consequence of real wages
rigidity (p = 0, and w = provided nf = 0). This line of argument suggests that misplaced
economic policy may produce a kind of unemployment trap, to which mainstream uses to refer
as hysteresis:14 when authorities lack for room for manoeuvre in front of a negative shock, for
example because of budget balance considerations, the symbiosis only works partially, and
unemployment increases. Since nothing tends to reduce it then, authorities take it as the new
natural rate.

Monetary policy may furthermore be involved in such a depressive scenario in case of

persistent distributive tensions. As long as inflationary pressures are interpreted as the result of
a 'natural' lower demand for money, the central bank raises the rate of interest without seeing
the negative effects it has on employment. Here again, as far as nothing tends to reduce the rate
of unemployment, authorities take it as the new natural rate.

3.2.2. Keynesian macroeconomic governance

Let us now consider the type of policy mix involved by the governance principles of table 4.
The tax-expenditure combination (g, ) that is required to reach the employment and budget
balance targets (9) and (10) (given equations (1), (2k), (3), and (4)) depends on the set of
exogenous variables and parameters that represent the macroeconomic changing context and the
confidence of authorities.

One of these variables is the rate of interest, which expresses monetary influences on the policy
mix. Notice that the expected monetary policy is probably taken into account by the
government when it decides about the targets and their relative weight (µ, k); for example, if
the government thinks that the central bank will accommodate, it can adopt a more ambitious
plan. Hence, the central bank can make it more or less difficult for governments to reach their
objectives.

Monetary policy modelling is very sensitive in a Keynesian world since controlling the long
term rate of interest is uncertain, at least as far as reductions are concerned; but even when its
own positive influence on effective demand is doubtful, it helps indirectly if it gives the
supplementary money that is needed when fiscal-budgetary policy aim to stimulate the effective
demand, avoiding by the way a rise of interest rate which otherwise could weaken the policy
outcome. Of course such a policy mix could produce some rise in the price index, but remember
that, even in the NCM, this is a necessary condition for economic recovery when nominal
wages are sticky; relative prices adjustment is quite different from inflation.

4. CONCLUSION

The paper presents both the New Consensus and Keynesian equilibria within the usual four
competitive macromarkets structure. It discusses how market interactions differ depending on
the type of uncertainty, and why the optimum-oriented competitive forces at work in ergodic
regimes, does not work in the Keynesian representation of the world. It gives theoretical
explanations of the pernicious effects that the NCM governance brings about in non-ergodic
regimes, and put forward Keynesian principles of governance which include monetary,
budgetary and fiscal instruments, and suggest new directions for the positive and normative
analysis of macropolicies.

Within a Keynesian perspective, authorities should abandon any reference to the natural rate of
(un)employment, and other derivative concepts that do not apply to non-ergodic systems. If
there is no long run predictable trajectory along which money would have only nominal
influence, the ordinary conduct of monetary and fiscal-budgetary policies can not be guided by
any systematic 'optimal rule' designed in order to stabilize the economy near from a
predetermined trend. Uncertainty imposes a gradual and pragmatic approach, closely linked to
the context.

Furthermore, authorities should renounce to automatic rules disconnected from the context.
Discretion is better when there is no predictable trajectory of the economy. From this point of
view, authorities should take advantage of the complementarity between the central bank and
the budgetary-fiscal instruments. That certainly would help the government to fight
unemployment without denying the financial constraint. It is not necessary a matter of interest
rate reduction; it may simply hinge on avoiding interest rates increases when the government
aims to reflate the economy. In addition, the dissuasive impact of the liquidity constraint that
may result from a reputed non-accommodating monetary policy should not be ignored. Of
course such a policy mix could produce some rise in the price index, but remember that, even in
the NCM, this is a necessary condition for economic recovery when nominal wages are sticky;
relative prices adjustment is quite different from inflation.

As regard inflation, since central banks can not repress recurrent distributive inflationary
pressures without having permanent depressive effects on aggregate demand, unless demand
depresses itself or through budgetary-fiscal policy, authorities should recognize that another
way for fighting this kind of inflation rests on the continuous pursuit of a consensual income
distribution. In the paper, the distributive conflict exhibits a dominating influence upon the
policy mix, because the central bank all the more may help governments since inflation
pressures are weak. From this point of view, income distribution policy turns out to be of
primary importance as concerns the costs of inflation control, which corroborates the idea that
economic efficiency at the macro level, far from being the automatic outcome of free
competitive forces, should not be considered independently of the political and social context.

APPENDIX N°1

It is possible to introduce a fiscal distortion effect by supposing that, in the short run, it work
through the price of the variable input: replacing the nominal cost of labour (W) by W(1+ t),
where 0 < t < 1 measures the (weakened) impact of the tax rate on the labour cost, profit
maximisation requires Y/ N=W(1+ t)/P. The demand-for-labour relative rate of variation
(n) then takes the form of a function of the fiscally-corrected labour cost, which relative
variation can be approximated by (p w ) for small values of .

APPENDIX N°2

Starting from the aggregate demand function (Y tY) (i ) + G + A, where Y represents

the output volume, i the rate of interest, the expected inflation rate till the next period, t the
tax rate (taxes/output), the propensity to consume, G the governments expenditures, A an
autonomous component, the market for goods equilibrium requires: Y= (Y tY) (i ) + G +
A

Differentiating around a solution indexed by 0 (with d = 0 and d = 0), and dividing by Y0,
we get:

Since t0=T0/Y0, the equality dG/Y0=t0dG/G0 holds when the budget is balanced (T0=G0). Writing
relative deviation rates with small letters (x=dX/X0), except a=dA/Y0, we have:

hence:

where
APPENDIX N° 3

It is not essential to make imperfect competition assumptions in order to obtain a mark-up

relation. For example, starting with the production function Y = CNª, < 1, competitive pricing
requires the marginal productivity to be equal to the real cost of labour:
Y/ N=W(1+ t)/P P=W(1+ t)/(CaN ª-1)= (WN(1+ t)/Y)/ ; hence, by differentiation of the
associated logarithmic expression (for small values of ), p = w + n y + we have ,
where is the rate of variation in (exogenous). Notice that an increasing mark-up on unit
labour cost expresses in this case a declining wages-output ratio ( < 0) and/or increasing fiscal
taxes ( = dt > 0).

APPENDIX N°4

The budget balance (B) is defined as:

B=tPY-PG

Differentiating around a solution indexed by 0 yields:

dB=t0P0dY+P0Y0dt+t0Y0dP-P0dG-G0dP

and dividing by the initial value of output:

dB/(P0Y0)=t0dY/Y0+dt+t0dP/P0-dG/Y0-(G0/Y0)(dP/P0)

Hence, around a situation of balanced budget where t0=G0/Y0 (remember g=dG/G0):

b=t0(y-g)+dt

and, with the same notation as in appendix n°1:

b= (y g) +

REFERENCES

ARESTIS, P. & SAWYER, M. (2003a) 'Inflation targeting: a critical appraisal', The Levy
Economics Institute working papers, n° 388 (2003a). [ Links ]
ARESTIS, P. & SAWYER, M. (2003a) 'Reinventing fiscal policy', Journal of Post-Keynesian
Economics, 26(1) 3-26. [ Links ]

ASENSIO, A. (2005) 'Monetary and budgetary-fiscal policy interactions in a Keynesian

context: revisiting macroeconomic governance', paper presented at the 9th Conference of the
Research Network 'Alternative Macroeconomic Policies', Berlin, October 28-29, forthcoming in
P. Arestis, E. Hein and E. Le Heron, Monetary Policies - Modern Approaches,
Palgrave/Macmillan. [ Links ]

DAVIDSON, P. (2002), Financial markets, money and the real world, Cheltenham: Edward
Elgar. [ Links ]

DIXIT A., LAMBERTINI L., 'Monetary-fiscal policy interactions and commitment versus
discretion in a monetary union, European Economic Review, 45 (2001) 977-987. [ Links ]

DIXIT A., LAMBERTINI L., 'Symbiosis of monetary and fiscal policies in a monetary union',
Journal of International Economics, 60 (2003) 235-247. [ Links ]

PALLEY, T. I. (2005) 'Keynesian Models of Recession and Depression', unpublished

manuscript, november, available at the author website: www.thomaspalley.com. [ Links ]

PALLEY, T. I. (2006) 'A Post Keynesian Framework for Monetary Policy: Why Interest Rate
Operating Procedures are not Enough', in C. Gnos and L.-P. Rochon (eds), Post Keynesian
Principles of Economic Policy, Cheltenham: Edward Elgar. [ Links ]

ROMER, D. (2000) 'Keynesian macroeconomics without the LM curve', Journal of Economic

Perspectives, 14(2) 49-169. [ Links ]

TOBIN, J. (1975) 'Keynesian Models of Recession and Depression', American Economic

Review, 65, 195-202. [ Links ]

VERCELLI, A. (1990) Methodological foundations of macroeconomics: Keynes and Lucas,

Cambridge: Cambridge University Press. [ Links ]

Submitted: January 2006; Accepted: March 2006.

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Keynesian economics (/ˈkeɪnziən/ KAYN-zee-ən; sometimes called Keynesianism) are the

various macroeconomic theories about how in the short run – and especially during recessions –
economic output is strongly influenced by aggregate demand (total demand in the economy). In
the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the
economy; instead, it is influenced by a host of factors and sometimes behaves erratically,
affecting production, employment, and inflation.[1]

Keynesian economics developed during and after the Great Depression, from the ideas
presented by John Maynard Keynes in his 1936 book, The General Theory of Employment,
Interest and Money.[2] Keynes contrasted his approach to the aggregate supply-focused classical
economics that preceded his book. The interpretations of Keynes that followed are contentious
and several schools of economic thought claim his legacy.
Keynesian economists generally argue that, as aggregate demand is volatile and unstable, a
market economy will often experience inefficient macroeconomic outcomes in the form of
economic recessions (when demand is low) and inflation (when demand is high). These can be
mitigated by economic policy responses, in particular, monetary policy actions by the central
bank and fiscal policy actions by the government, which can help stabilize output over the
business cycle.[3] Keynesian economists generally advocate a managed market economy –
predominantly private sector, but with an active role for government intervention during
recessions and depressions.[4]

Keynesian economics served as the standard economic model in the developed nations during
the later part of the Great Depression, World War II, and the post-war economic expansion
(1945–1973), though it lost some influence following the oil shock and resulting stagflation of
the 1970s.[5] The advent of the financial crisis of 2007–08 caused a resurgence in Keynesian
thought,[6] which continues as new Keynesian economics.

Contents

 1 Historical context
o 1.1 Pre-Keynesian macroeconomics
o 1.2 Precursors of Keynesianism
o 1.3 Keynes's early writings
o 1.4 Development of The General Theory
o 1.5 Origins of the multiplier
o 1.6 Public policy debates
 2 The General Theory
o 2.1 Keynes and classical economics
o 2.2 Keynesian unemployment
 2.2.1 Saving and investment
 2.2.2 Liquidity preference
 2.2.3 Keynes’s economic model
 2.2.4 Wage rigidity
o 2.3 Remedies for unemployment
 2.3.1 Monetary remedies
 2.3.2 Fiscal remedies
 3 Keynesian models and concepts
o 3.1 Aggregate demand
o 3.2 The Keynesian multiplier
o 3.3 The liquidity trap
 3.3.1 The IS–LM model
 4 Keynesian economic policies
o 4.1 Active fiscal policy
o 4.2 Views on trade imbalance
 5 Postwar Keynesianism
 o 5.1 Schools
 6 Other schools of economics
o 6.1 Stockholm School
o 6.2 Monetarism
o 6.3 Public choice
o 6.4 New classical
 7 See also
 8 References
 9 Further reading
 10 External links

Historical context[edit]

Pre-Keynesian macroeconomics[edit]

Macroeconomics is the study of the factors applying to an economy as a whole, such as the
overall price level, the interest rate, and the level of employment (or equivalently, of
income/output measured in real terms).

The classical tradition of partial equilibrium theory had been to split the economy into separate
markets, each of whose equilibrium conditions could be stated as a single equation determining
a single variable. The theoretical apparatus of supply and demand curves developed by
Fleeming Jenkin and Alfred Marshall provided a unified mathematical basis for this approach,
which the Lausanne School generalized to general equilibrium theory.

For macroeconomics the relevant partial theories were: the Quantity theory of money
determining the price level, the classical theory of the interest rate, and for employment the
condition referred to by Keynes as the "first postulate of classical economics" stating that the
wage is equal to the marginal product, which is a direct application of the marginalist principles
developed during the nineteenth century (see The General Theory). Keynes sought to supplant
all three aspects of the classical theory.

Precursors of Keynesianism[edit]

See also: Underconsumption, Birmingham School (economics), and Stockholm school

(economics)

Although Keynes's work was crystallized and given impetus by the advent of the Great
Depression, it was part of a long-running debate within economics over the existence and nature
of general gluts. A number of the policies Keynes advocated to address the Great Depression
(notably government deficit spending at times of low private investment or consumption), and
many of the theoretical ideas he proposed (effective demand, the multiplier, the paradox of
thrift), had been advanced by various authors in the 19th and early 20th centuries. Keynes's
unique contribution was to provide a general theory of these, which proved acceptable to the
economic establishment.
An intellectual precursor of Keynesian economics was underconsumption theories associated
with John Law, Thomas Malthus, the Birmingham School of Thomas Attwood,[7] and the
American economists William Trufant Foster and Waddill Catchings, who were influential in
the 1920s and 1930s. Underconsumptionists were, like Keynes after them, concerned with
failure of aggregate demand to attain potential output, calling this "underconsumption"
(focusing on the demand side), rather than "overproduction" (which would focus on the supply
side), and advocating economic interventionism. Keynes specifically discussed
underconsumption (which he wrote "under-consumption") in the General Theory, in Chapter
22, Section IV and Chapter 23, Section VII.

Numerous concepts were developed earlier and independently of Keynes by the Stockholm
school during the 1930s; these accomplishments were described in a 1937 article, published in
response to the 1936 General Theory, sharing the Swedish discoveries.[8]

The paradox of thrift was stated in 1892 by John M. Robertson in his The Fallacy of Saving, in
earlier forms by mercantilist economists since the 16th century, and similar sentiments date to
antiquity.[9][10]

Keynes's early writings[edit]

In 1923 Keynes published his first contribution to economic theory, A Tract on Monetary
Reform, whose point of view is classical but which incorporates ideas later to play a part in the
General Theory : in particular, looking at the hyperinflation in European economies, he drew
attention to the opportunity cost of holding money (identified with inflation rather than interest)
and its influence on the velocity of circulation.[11]

In 1930 he published A Treatise on Money, intended as a comprehensive treatment of its subject

"which would confirm his stature as a serious academic scholar, rather than just as the author of
stinging polemics",[12] and which marks a large step in the direction of his later views. In it he
attributes unemployment to wage stickiness[13] and treats saving and investment as governed by
independent decisions: the former varying positively with the interest rate,[14] the latter
negatively.[15] The velocity of circulation is expressed as a function of the rate of interest.[16] He
interpreted his treatment of liquidity as implying a purely monetary theory of interest. [17]

Keynes's younger colleagues of the Cambridge Circus and Ralph Hawtrey believed that his
arguments implicitly assumed full employment, and this influenced the direction of his
subsequent work.[18] During 1933 he wrote essays on various economic topics "all of which are
cast in terms of movement of output as a whole".[19]

Development of The General Theory[edit]

At the time that Keynes's wrote the General Theory, it had been a tenet of mainstream economic
thought that the economy would automatically revert to a state of general equilibrium: it had
been assumed that, because the needs of consumers are always greater than the capacity of the
producers to satisfy those needs, everything that is produced would eventually be consumed
once the appropriate price was found for it. This perception is reflected in Say's law[20] and in
the writing of David Ricardo,[21] which states that individuals produce so that they can either
consume what they have manufactured or sell their output so that they can buy someone else's
output. This argument rests upon the assumption that if a surplus of goods or services exists,
they would naturally drop in price to the point where they would be consumed.

Given the backdrop of high and persistent unemployment during the Great Depression, Keynes
argued that there was no guarantee that the goods that individuals produce would be met with
adequate effective demand, and periods of high unemployment could be expected, especially
when the economy was contracting in size. He saw the economy as unable to maintain itself at
full employment automatically, and believed that it was necessary for the government to step in
and put purchasing power into the hands of the working population through government
spending. Thus, according to Keynesian theory, some individually rational microeconomic-
level actions such as not investing savings in the goods and services produced by the economy,
if taken collectively by a large proportion of individuals and firms, can lead to outcomes
wherein the economy operates below its potential output and growth rate.

Prior to Keynes, a situation in which aggregate demand for goods and services did not meet
supply was referred to by classical economists as a general glut, although there was
disagreement among them as to whether a general glut was possible. Keynes argued that when a
glut occurred, it was the over-reaction of producers and the laying off of workers that led to a
fall in demand and perpetuated the problem. Keynesians therefore advocate an active
stabilization policy to reduce the amplitude of the business cycle, which they rank among the
most serious of economic problems. According to the theory, government spending can be used
to increase aggregate demand, thus increasing economic activity, reducing unemployment and
deflation.

Origins of the multiplier[edit]

The Liberal Party fought the 1929 General Election on a promise to "reduce levels of
unemployment to normal within one year by utilising the stagnant labour force in vast schemes
of national development".[22] David Lloyd George launched his campaign in March with a
policy document "We can cure unemployment" which made the tentative claim that "public
works would lead to a second round of spending as the workers spent their wages".[23] Two
months later Keynes, then nearing completion of his Treatise on money,[24] and Hubert
Henderson collaborated on a political pamphlet seeking to "provide academically respectable
economic arguments" for Lloyd George's policies.[25] It was titled Can Lloyd George do it? and
endorsed the claim that "greater trade activity would make for greater trade activity ... with a
cumulative effect".[26] This became the mechanism of the "ratio" published by Richard Kahn in
his 1931 paper "The relation of home investment to unemployment",[27] described by Alvin
Hansen as "one of the great landmarks of economic analysis".[28] The "ratio" was soon
rechristened the "multiplier" at Keynes's suggestion.[29]

The multiplier of Kahn's paper is based on a respending mechanism familiar nowadays from
textbooks. Samuelson puts it as follows:
Let’s suppose that I hire unemployed resources to build a $1000 woodshed. My carpenters and
lumber producers will get an extra $1000 of income... If they all have a marginal propensity to
consume of 2/3, they will now spend $666.67 on new consumption goods. The producers of
these goods will now have extra incomes... they in turn will spend $444.44 ... Thus an endless
chain of secondary consumption respending  is set in motion by my primary  investment of
$1000.[30]

Samuelson's treatment closely follows Joan Robinson's account of 1937[31] and is the main
channel by which the multiplier has influenced Keynesian theory. It differs significantly from
Kahn's paper and even more from Keynes’s book.

The designation of the initial spending as "investment" and the employment-creating respending
as "consumption" echoes Kahn faithfully, though he gives no reason why initial consumption or
subsequent investment respending shouldn’t have exactly the same effects. Henry Hazlitt, who
considered Keynes to be as much a culprit as Kahn and Samuelson, wrote that ...

... in connection with the multiplier (and indeed most of the time) what Keynes is referring to as
"investment" really means any addition to spending for any purpose... The word "investment" is
being used in a Pickwickian, or Keynesian, sense.[32]

Kahn envisaged money as being passed from hand to hand, creating employment at each step,
until it came to rest in a cul-de-sac  (Hansen's term was "leakage"); the only culs-de-sac  he
acknowledged were imports and hoarding, although he also said that a rise in prices might
dilute the multiplier effect. Jens Warming recognised that personal saving needed to be taken
into consideration,[33] treating it as a "leakage" (p. 214) while recognising on p. 217 that it might
in fact be invested.

The textbook multiplier gives the impression that making society richer is the easiest thing in
the world: the government just needs to decide to spend more. In Kahn's paper it is harder. For
him the initial expenditure must not be a diversion of funds from other uses but an increase in
the total amount of expenditure taking place: something which would be impossible – if
understood in real terms – under the classical theory that the level of expenditure is limited by
the economy's income/output. On p174 Kahn rejects the claim that the effect of public works
will be at the expense of expenditure elsewhere, admitting that this might arise if the revenue
was raised by taxation, but says that other means are available which have no such
consequences. As an example he suggests that the money may be raised by borrowing from
banks, since ...

... it is always within the power of the banking system to advance to the Government the cost of
the roads without in any way affecting the flow of investment along the normal channels.

This assumes that banks are free to create resources to answer any demand. But Kahn adds that
...
... no such hypothesis is really necessary. For it will be demonstrated later on that, pari passu 
with the building of roads, funds are released from various sources at precisely the rate that is
required to pay the cost of the roads.

The demonstration relies on "Mr Meade's relation" (due to James Meade) asserting that the total
amount of money which disappears into culs-de-sac  is equal to the original outlay,[34] which in
Kahn's words "should bring relief and consolation to those who are worried about the monetary
sources" (p. 189).

A respending multiplier had been proposed earlier by Hawtrey in a 1928 Treasury

memorandum ("with imports as the only leakage"), but the idea was discarded in his own
subsequent writings.[35] Soon afterwards the Australian economist Lyndhurst Giblin published a
multiplier analysis in a 1930 lecture (again with imports as the only leakage).[36] The idea itself
was much older. Some Dutch mercantilists had believed in an infinite multiplier for military
expenditure (assuming no import "leakage"), since ...

... a war could support itself for an unlimited period if only money remained in the country ...
For if money itself is "consumed", this simply means that it passes into someone else's
possession, and this process may continue indefinitely.[37]

Multiplier doctrines had subsequently been expressed in more theoretical terms by the Dane
Julius Wulff (1896), the Australian Alfred de Lissa (late 1890s), the German/American
Nicholas Johannsen (same period), and the Dane Fr. Johannsen (1925/1927).[38] Kahn himself
said that the idea was given to him as a child by his father.[39]

Public policy debates[edit]

As the 1929 election approached "Keynes was becoming a strong public advocate of capital
development" as a public measure to alleviate unemployment.[40] Winston Churchill, the
Conservative Chancellor, took the opposite view:

It is the orthodox Treasury dogma, steadfastly held ... [that] very little additional employment
and no permanent additional employment can, in fact, be created by State borrowing and State
expenditure.[41]

Keynes pounced on a chink in the Treasury view. Cross-examining Sir Richard Hopkins, a
Second Secretary in the Treasury, before the Macmillan Committee on Finance and Industry in
1930 he referred to the "first proposition" that "schemes of capital development are of no use
for reducing unemployment" and asked whether "it would be a misunderstanding of the
Treasury view to say that they hold to the first proposition". Hopkins responded that "The first
proposition goes much too far. The first proposition would ascribe to us an absolute and rigid
dogma, would it not?"[42]

Later the same year, speaking in a newly created Committee of Economists, Keynes tried to use
Kahn's emerging multiplier theory to argue for public works, "but Pigou's and Henderson's
objections ensured that there was no sign of this in the final product".[43] In 1933 he gave wider
publicity to his support for Kahn's multiplier in a series of articles titled "The road to
prosperity" in The Times newspaper.[44]

A. C. Pigou was at the time the sole economics professor at Cambridge. He had a continuing
interest in the subject of unemployment, having expressed the view in his popular
Unemployment  (1913) that it was caused by "maladjustment between wage-rates and
demand"[45] – a view which Keynes may have shared prior to the years of the General Theory.
Nor were his practical recommendations very different: "on many occasions in the thirties"
Pigou "gave public support ... to State action designed to stimulate employment".[46] Where the
two men differed is in the link between theory and practice. Keynes was seeking to build
theoretical foundations to support his recommendations for public works while Pigou showed
no disposition to move away from classical doctrine. Referring to him and Dennis Robertson,
Keynes asked rhetorically: "Why do they insist on maintaining theories from which their own
practical conclusions cannot possibly follow?"[47]

The General Theory[edit]

Main article: The General Theory of Employment, Interest and Money

Keynes set forward the ideas that became the basis for Keynesian economics in his main work,
The General Theory of Employment, Interest and Money (1936). It was written during the Great
Depression, when unemployment rose to 25% in the United States and as high as 33% in some
countries. It is almost wholly theoretical, enlivened by occasional passages of satire and social
commentary. The book had a profound impact on economic thought, and ever since it was
published there has been debate over its meaning.

Keynes and classical economics[edit]

Keynes begins the General theory  with a summary of the classical theory of employment,
which he encapsulates in his formulation of Say's Law as the dictum "Supply creates its own
demand".

Under the classical theory the wage rate is determined by the marginal productivity of labour,
and as many people will be employed as are willing to take work at that rate. Unemployment
may arise through friction or may be "voluntary" in the sense that it arises from a refusal to
accept employment owing to "legislation or social practices ... or mere human obstinacy", but
"the classical postulates do not admit of the possibility of the third category" which Keynes
defines as "involuntary unemployment".[48]

Keynes raises two objections to the classical theory's assumption that "wage bargains ...
determine the real wage". The first lies in the fact that "labour stipulates (within limits) for a
money-wage rather than a real wage". The second is that classical theory assumes that "the real
wages of labour depend on the wage bargains which labour makes with the entrepreneurs"
whereas "if money wages change, one would have expected the classical school to argue that
prices would change in almost the same proportion, leaving the real wage and the level of
unemployment practically the same as before".[49] Keynes considers the second objection to be
the more fundamental, but his expectation concerning the classical school contradicts the
quantity theory of money and most commentators have concentrated on his first objection.

Keynesian unemployment[edit]

Saving and investment[edit]

Saving is that part of income not devoted to consumption, and consumption is that part of
expenditure not allocated to investment, i.e. to durable goods.[50] Hence saving encompasses
hoarding (the accumulation of income as cash) and the purchase of durable goods. The
existence of net hoarding, or of a demand to hoard, is not admitted by the simplified liquidity
preference model of the General Theory.

Once he has rejected the classical theory that unemployment is due to excessive wages, Keynes
proposes his alternative based on the relationship between saving and investment. In his view
unemployment arises whenever entrepreneurs' incentive to invest fails to keep pace with
society's propensity to save (propensity  being one of Keynes's synonyms for "demand"). The
levels of saving and investment are necessarily equal, and income is therefore held down to a
level at which the desire to save is no greater than the incentive to invest.

The incentive to invest arises from the interplay between the physical circumstances of
production and psychological anticipations of future profitability; but once these things are
given the incentive is independent of income and depends solely on the rate of interest r.
Keynes designates its value as a function of r  as the "schedule of the marginal efficiency of
capital".[51]

The propensity to save behaves quite differently.[52] Saving is simply that part of income which
is not devoted to consumption, and:

... the prevailing psychological law seems to be that when aggregate income increases,
consumption expenditure will also increase but to a somewhat lesser extent.[53]

Keynes adds that "this psychological law was of the utmost importance in the development of
my own thought".

Liquidity preference[edit]

Determination of income according to the General Theory

Keynes viewed the money supply as one of the main determinants of the state of the real
economy. The significance he attributed to it is one of the innovative features of his work, and
was influential on the politically hostile monetarist school.
Money supply comes into play through the "liquidity preference" function which specifies the
amount of money people will choose to hold according to the state of the economy. In Keynes's
first (and simplest) account – that of Chapter 13 – liquidity preference is a function solely of the
interest rate r  which is seen as the earnings forgone by holding wealth in liquid form: hence
liquidity preference can be written L (r) and in equilibrium must equal the externally fixed
money supply M̂.

Keynes’s economic model[edit]

Money supply, saving and investment combine to determine the level of income as illustrated in
the diagram[54], where the top graph shows money supply (on the vertical axis) against interest
rate. M̂  determines the ruling interest rate r̂   through the liquidity preference function. The rate
of interest determines the level of investment Î  through the schedule of the marginal efficiency
of capital, shown as a blue curve in the lower graph. The red curves in the same diagram show
what the propensities to save will be for different incomes Y ; and the income Ŷ  corresponding
to the equilibrium state of the economy must be the one for which the implied level of saving at
the established interest rate is equal to Î.

In Keynes's more complicated liquidity preference theory (presented in Chapter 15) the demand
for money depends on income as well as on the interest rate and the analysis becomes more
complicated. Keynes never fully integrated his second liquidity preference doctrine with the rest
of his theory, leaving the task to be completed by John Hicks: see the IS-LM model below.

Wage rigidity[edit]

Although Keynes rejects the classical explanation of unemployment based on wage rigidity it is
not clear what effect the wage rate has on unemployment in his own system. He treats the
wages of all workers as proportional to a single rate set by collective bargaining, and chooses
his units so that this rate never appears separately in his discussion. It is present implicitly in
those quantities which are expressed in wage units while being absent from those expressed in
money terms. It is therefore difficult to see whether, and in what way, his results would differ
for a different wage rate; nor is it entirely clear what he thought on the matter.

Remedies for unemployment[edit]

Monetary remedies[edit]

An increase in the money supply, according to Keynes's theory, will lead to a drop in the
interest rate and to an increase in the amount of investment which can be profitably undertaken,
bringing with it an increase in total income.

Fiscal remedies[edit]

Keynes' name is associated with fiscal rather than monetary measures but they receive only
passing (and often satirical) reference in the General Theory. He mentions "increased public
works" as an example of something which brings employment through the "multiplier",[55] but
this is before he has developed the relevant theory, and he does not follow up the idea when the
theory becomes available.

Later in the same chapter he tells us that:

Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it
possessed two activities, namely, pyramid-building as well as the search for the precious metals,
the fruits of which, since they could not serve the needs of man by being consumed, did not
stale with abundance. The Middle Ages built cathedrals and sang dirges. Two pyramids, two
masses for the dead, are twice as good as one; but not so two railways from London to York.

But again the implied recommendation to engage in public works, even if they are not fully
justified from their direct benefits, is not taken up when the theory has been constructed. On the
contrary he advises us later that ...

... our final task might be to select those variables which can be deliberately controlled or
managed by central authority in the kind of system in which we actually live ...[56]

and this appears to look forward to a future publication rather than to a subsequent chapter of
the General Theory.

Keynesian models and concepts[edit]

Aggregate demand[edit]

Keynes–Samuelson cross

Keynes' view of saving and investment was his most important departure from the classical
outlook. It can be illustrated using the "Keynesian cross" devised by Paul Samuelson.[57] The
horizontal axis denotes total income and the purple curve shows C (Y ), the propensity to
consume, whose complement S (Y ) is the propensity to save: the sum of these two functions is
equal to total income which is shown by the broken line at 45°.

The horizontal blue line Is (r ) is the schedule of the marginal efficiency of capital whose value
is independent of Y. Keynes interprets this as the demand for investment and denotes the sum of
demands for consumption and investment as "aggregate demand", plotted as a separate curve.
Aggregate demand must equal total income, so equilibrium income must be determined by the
point at which the aggregate demand curve crosses the 45° line.[58] This is the same horizontal
position as the intersection of Is (r ) with S (Y ).

The equation Is (r ) = S (Y ) had been accepted by the classics, who had viewed it as the
condition of equilibrium between supply and demand for investment funds and as determining
the interest rate (see the classical theory of interest). But insofar as they had had a concept of
aggregate demand, they had seen the demand for investment as being given by S (Y ), since for
them saving was simply the indirect purchase of capital goods, with the result that aggregate
demand was equal to total income as an identity rather than as an equilibrium condition. Keynes
takes note of this view in Chapter 2, where he finds it present in the early writings of Alfred
Marshall but adds that "the doctrine is never stated to-day in this crude form".

The equation Is (r ) = S (Y ) is accepted by Keynes for some or all of the following reasons:

 As a consequence of the "principle of effective demand" which asserts that aggregate

demand must equal total income (Chapter 3).
 As a consequence of the identity of saving with investment (Chapter 6) together with the
equilibrium assumption that these quantities are equal to their demands.
 In agreement with the substance of the classical theory of the investment funds market,
whose conclusion he considers the classics to have misinterpreted through circular
reasoning (Chapter 14).

These arguments support each other under Keynes's assumptions but would not necessarily do
so under more general ones, e.g. if one sought to allow for foreign trade as in the Mundell–
Fleming model.

The Keynesian multiplier[edit]

Keynes introduces his discussion of the multiplier in Chapter 10 with a reference to Kahn's
earlier paper (see above). He designates Kahn's multiplier the "employment multiplier" in
distinction to his own "investment multiplier" and says that the two are only "a little
different".[59] Kahn's multiplier has consequently been understood by much of the Keynesian
literature as playing a major role in Keynes's own theory, an interpretation encouraged by the
difficulty of understanding Keynes's presentation. Kahn's multiplier gives the title ("The
multiplier model") to the account of Keynesian theory in Samuelson's Economics  and is almost
as prominent in Alvin Hansen’s Guide to Keynes  and in Joan Robinson's Introduction to the
Theory of Employment.

Keynes states that there is ...

... a confusion between the logical theory of the multiplier, which holds good continuously,
without time-lag ... and the consequence of an expansion in the capital goods industries which
take gradual effect, subject to a time-lag, and only after an interval ...[60]

and makes clear that it is the former theory which he is adopting.[61] And when the multiplier
eventually emerges as a component of Keynes's theory (in Chapter 18) it turns out to be simply
a measure of the change of one variable in response to a change in another. The schedule of the
marginal efficiency of capital is identified as one of the independent variables of the economic
system:[62] "What [it] tells us, is ... the point to which the output of new investment will be
pushed ..."[63] The multiplier then gives "the ratio ... between an increment of investment and the
corresponding increment of aggregate income".[64]
G. L. S. Shackle regarded Keynes' move away from Kahn's multiplier as ...

... a retrograde step ... For when we look upon the Multiplier as an instantaneous functional
relation ... we are merely using the word Multiplier to stand for an alternative way of looking at
the marginal propensity to consume ...[65]

which G. M. Ambrosi cites as an instance of "a Keynesian commentator who would have liked
Keynes to have written something less 'retrograde'".[66]

The value Keynes assigns to his multiplier is the reciprocal of the marginal propensity to save:
k  = 1 / S '(Y ). This would be the same as the formula for Kahn's mutliplier in a closed economy
if all saving, and not just hoarding, constituted leakage. Keynes gave his formula almost the
status of a definition (it is put forward in advance of any explanation[67]). His multiplier is
indeed the value of "the ratio ... between an increment of investment and the corresponding
increment of aggregate income" under his Chapter 13 model of liquidity preference, which
implies that income must bear the entire effect of a change in investment. But under his
Chapter 15 model a change in the schedule of the marginal efficiency of capital has an effect
shared between the interest rate and income in proportions depending on the partial derivatives
of the liquidity preference function. The resulting multiplier would have a more complicated
formula and a smaller numerical value.[68]

The liquidity trap[edit]

The liquidity trap.

The liquidity trap is a phenomenon which may impede the effectiveness of monetary policies in
reducing unemployment.

It has generally been considered that the rate of interest would not fall below a certain limit,
often seen as zero or a slightly negative number. Keynes suggested that the limit might be
appreciably greater than zero but did not attach much practical significance to it. The term
"liquidity trap" was coined by Dennis Robertson in his comments on the General Theory,[69] but
it was John Hicks in "Mr. Keynes and the Classics"[70] who recognised the significance of a
slightly different concept.

If the economy is in a position such that the liquidity preference curve is almost vertical, as
must happen as the lower limit on r  is approached, then a change in the money supply M̂  will
make almost no difference to the equilibrium rate of interest r̂   or, unless there is compensating
steepness in the other curves, to the resulting income Ŷ. As Hicks put it, ‘monetary means will
not force down the rate of interest any further’.

Paul Krugman has worked extensively on the liquidity trap, claiming that it was the problem
confronting the Japanese economy around the turn of the millennium.[71] In his later words:
Short-term interest rates were close to zero, long-term rates were at historical lows, yet private
investment spending remained insufficient to bring the economy out of deflation. In that
environment, monetary policy was just as ineffective as Keynes described. Attempts by the
Bank of Japan to increase the money supply simply added to already ample bank reserves and
public holdings of cash...[72]

The IS–LM model[edit]

IS–LM plot

Hicks showed how to analyze Keynes' system when liquidity preference is a function of income
as well as of the rate of interest. Keynes's admission of income as an influence on the demand
for money is a step back in the direction of classical theory, and Hicks takes a further step in the
same direction by generalizing the propensity to save to take both Y  and r  as arguments. Less
classically he extends this generalization to the schedule of the marginal efficiency of capital.

The IS-LM model uses two equations to express Keynes' model. The first, now written Is(Y,
r) = S (Y,r), expresses the principle of effective demand. We may construct a graph on (Y, r)
coordinates and draw a line connecting those points satisfying the equation: this is the IS  curve.
In the same way we can write the equation of equilibrium between liquidity preference and the
money supply as L(Y ,r ) = M̂ and draw a second curve – the LM  curve – connecting points
which satisfy it. The equilibrium values Ŷ  of total income and r̂   of interest rate are then given
by the point of intersection of the two curves.

If we follow Keynes's initial account under which liquidity preference depends only on the
interest rate r, then the LM  curve will be horizontal.

Joan Robinson commented that:

... modern teaching has been confused by J. R. Hicks' attempt to reduce the General Theory to a
version of static equilibrium with the formula IS–LM. Hicks has now repented and changed his
name from J. R. to John, but it will take a long time for the effects of his teaching to wear off.

Hicks subsequently relapsed.[73]

Keynesian economic policies[edit]

Active fiscal policy[edit]

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Typical intervention strategies under different conditions

Keynes argued that the solution to the Great Depression was to stimulate the country ("incentive
to invest") through some combination of two approaches:

1. A reduction in interest rates (monetary policy), and

2. Government investment in infrastructure (fiscal policy).

If the interest rate at which businesses and consumers can borrow is decreased, investments
which were previously uneconomic become profitable, and large consumer sales which are
normally financed through debt (such as houses, automobiles, and, historically, even appliances
like refrigerators) become more affordable. A principal function of central banks in countries
which have them is to influence this interest rate through a variety of mechanisms which are
collectively called monetary policy. This is how monetary policy which reduces interest rates is
thought to stimulate economic activity, i.e. "grow the economy", and why it is called
expansionary monetary policy.

Expansionary fiscal policy consists of increasing net public spending, which the government
can effect by a) taxing less, b) spending more, or c) both. Investment and consumption by
government raises demand for businesses' products and for employment, reversing the effects of
the aforementioned imbalance. If desired spending exceeds revenue, the government finances
the difference by borrowing from capital markets by issuing government bonds. This is called
deficit spending. Two points are important to note at this point. First, deficits are not required
for expansionary fiscal policy, and second, it is only change in net spending that can stimulate
or depress the economy. For example, if a government ran a deficit of 10% both last year and
this year, this would represent neutral fiscal policy. In fact, if it ran a deficit of 10% last year
and 5% this year, this would actually be contractionary. On the other hand, if the government
ran a surplus of 10% of GDP last year and 5% this year, that would be expansionary fiscal
policy, despite never running a deficit at all.

But – contrary to some critical characterizations of it – Keynesianism does not consist solely of
deficit spending, since it recommends adjusting fiscal policies according to cyclical
circumstances.[74] An example of a counter-cyclical policy is raising taxes to cool the economy
and to prevent inflation when there is abundant demand-side growth, and engaging in deficit
spending on labour-intensive infrastructure projects to stimulate employment and stabilize
wages during economic downturns.

Keynes's ideas influenced Franklin D. Roosevelt's view that insufficient buying-power caused
the Depression. During his presidency, Roosevelt adopted some aspects of Keynesian
economics, especially after 1937, when, in the depths of the Depression, the United States
suffered from recession yet again following fiscal contraction. But to many the true success of
Keynesian policy can be seen at the onset of World War II, which provided a kick to the world
economy, removed uncertainty, and forced the rebuilding of destroyed capital. Keynesian ideas
became almost official in social-democratic Europe after the war and in the U.S. in the 1960s.

The Keynesian advocacy of deficit spending contrasted with the classical and neoclassical
economic analysis of fiscal policy. They admitted that fiscal stimulus could actuate production.
But, to these schools, there was no reason to believe that this stimulation would outrun the side-
effects that "crowd out" private investment: first, it would increase the demand for labour and
raise wages, hurting profitability; Second, a government deficit increases the stock of
government bonds, reducing their market price and encouraging high interest rates, making it
more expensive for business to finance fixed investment. Thus, efforts to stimulate the economy
would be self-defeating.

The Keynesian response is that such fiscal policy is appropriate only when unemployment is
persistently high, above the non-accelerating inflation rate of unemployment (NAIRU). In that
case, crowding out is minimal. Further, private investment can be "crowded in": Fiscal stimulus
raises the market for business output, raising cash flow and profitability, spurring business
optimism. To Keynes, this accelerator effect meant that government and business could be
complements rather than substitutes in this situation.

Second, as the stimulus occurs, gross domestic product rises, raising the amount of saving,
helping to finance the increase in fixed investment. Finally, government outlays need not
always be wasteful: government investment in public goods that will not be provided by profit-
seekers will encourage the private sector's growth. That is, government spending on such things
as basic research, public health, education, and infrastructure could help the long-term growth
of potential output.

In Keynes's theory, there must be significant slack in the labour market before fiscal expansion
is justified.
Keynesian economists believe that adding to profits and incomes during boom cycles through
tax cuts, and removing income and profits from the economy through cuts in spending during
downturns, tends to exacerbate the negative effects of the business cycle. This effect is
especially pronounced when the government controls a large fraction of the economy, as
increased tax revenue may aid investment in state enterprises in downturns, and decreased state
revenue and investment harm those enterprises.

Views on trade imbalance[edit]

In the last few years of his life, John Maynard Keynes was much preoccupied with the question
of balance in international trade. He was the leader of the British delegation to the United
Nations Monetary and Financial Conference in 1944 that established the Bretton Woods system
of international currency management. He was the principal author of a proposal – the so-called
Keynes Plan – for an International Clearing Union. The two governing principles of the plan
were that the problem of settling outstanding balances should be solved by 'creating' additional
'international money', and that debtor and creditor should be treated almost alike as disturbers of
equilibrium. In the event, though, the plans were rejected, in part because "American opinion
was naturally reluctant to accept the principle of equality of treatment so novel in debtor-
creditor relationships".[75]

The new system is not founded on free-trade (liberalisation[76] of foreign trade[77]) but rather on
the regulation of international trade, in order to eliminate trade imbalances: the nations with a
surplus would have a powerful incentive to get rid of it, and in doing so they would
automatically clear other nations deficits[78]. Keynes proposed a global bank that would issue its
own currency - the bancor - which was exchangeable with national currencies at fixed rates of
exchange and would become the unit of account between nations, which means it would be
used to measure a country's trade deficit or trade surplus. Every country would have an
overdraft facility in its bancor account at the International Clearing Union. He pointed out that
surpluses lead to weak global aggregate demand – countries running surpluses exert a "negative
externality" on trading partners, and posed far more than those in deficit, a threat to global
prosperity. Keynes thought that surplus countries should be taxed to avoid trade imbalances [79].
In "National Self-Sufficiency" The Yale Review, Vol. 22, no. 4 (June 1933) [80][81], he already
highlighted the problems created by free trade.

His view, supported by many economists and commentators at the time, was that creditor
nations may be just as responsible as debtor nations for disequilibrium in exchanges and that
both should be under an obligation to bring trade back into a state of balance. Failure for them
to do so could have serious consequences. In the words of Geoffrey Crowther, then editor of
The Economist, "If the economic relationships between nations are not, by one means or
another, brought fairly close to balance, then there is no set of financial arrangements that can
rescue the world from the impoverishing results of chaos."[82]

These ideas were informed by events prior to the Great Depression when – in the opinion of
Keynes and others – international lending, primarily by the U.S., exceeded the capacity of
sound investment and so got diverted into non-productive and speculative uses, which in turn
invited default and a sudden stop to the process of lending.[83]

Influenced by Keynes, economic texts in the immediate post-war period put a significant
emphasis on balance in trade. For example, the second edition of the popular introductory
textbook, An Outline of Money,[84] devoted the last three of its ten chapters to questions of
foreign exchange management and in particular the 'problem of balance'. However, in more
recent years, since the end of the Bretton Woods system in 1971, with the increasing influence
of Monetarist schools of thought in the 1980s, and particularly in the face of large sustained
trade imbalances, these concerns – and particularly concerns about the destabilising effects of
large trade surpluses – have largely disappeared from mainstream economics discourse[85] and
Keynes' insights have slipped from view.[86] They are receiving some attention again in the
wake of the financial crisis of 2007–08.[87]

Postwar Keynesianism[edit]
Main articles: Neo-Keynesian economics, New Keynesian economics, and Post-Keynesian
economics

Keynes's ideas became widely accepted after World War II, and until the early 1970s,
Keynesian economics provided the main inspiration for economic policy makers in Western
industrialized countries.[5] Governments prepared high quality economic statistics on an
ongoing basis and tried to base their policies on the Keynesian theory that had become the
norm. In the early era of social liberalism and social democracy, most western capitalist
countries enjoyed low, stable unemployment and modest inflation, an era called the Golden Age
of Capitalism.

In terms of policy, the twin tools of post-war Keynesian economics were fiscal policy and
monetary policy. While these are credited to Keynes, others, such as economic historian David
Colander, argue that they are, rather, due to the interpretation of Keynes by Abba Lerner in his
theory of functional finance, and should instead be called "Lernerian" rather than
"Keynesian".[88]

Through the 1950s, moderate degrees of government demand leading industrial development,
and use of fiscal and monetary counter-cyclical policies continued, and reached a peak in the
"go go" 1960s, where it seemed to many Keynesians that prosperity was now permanent. In
1971, Republican US President Richard Nixon even proclaimed "I am now a Keynesian in
economics."[89]

Beginning in the late 1960s, a new classical macroeconomics movement arose, critical of
Keynesian assumptions (see sticky prices), and seemed, especially in the 1970s, to explain
certain phenomena better. It was characterized by explicit and rigorous adherence to
microfoundations, as well as use of increasingly sophisticated mathematical modelling.

With the oil shock of 1973, and the economic problems of the 1970s, Keynesian economics
began to fall out of favour. During this time, many economies experienced high and rising
unemployment, coupled with high and rising inflation, contradicting the Phillips curve's
prediction. This stagflation meant that the simultaneous application of expansionary (anti-
recession) and contractionary (anti-inflation) policies appeared to be necessary. This dilemma
led to the end of the Keynesian near-consensus of the 1960s, and the rise throughout the 1970s
of ideas based upon more classical analysis, including monetarism, supply-side economics,[89]
and new classical economics.

However, by the late 1980s, certain failures of the new classical models, both theoretical (see
Real business cycle theory) and empirical (see the "Volcker recession")[90] hastened the
emergence of New Keynesian economics, a school which sought to unite the most realistic
aspects of Keynesian and neo-classical assumptions and place them on more rigorous
theoretical foundation than ever before.

One line of thinking, utilized also as a critique of the notably high unemployment and
potentially disappointing GNP growth rates associated with the new classical models by the
mid-1980s, was to emphasize low unemployment and maximal economic growth at the cost of
somewhat higher inflation (its consequences kept in check by indexing and other methods, and
its overall rate kept lower and steadier by such potential policies as Martin Weitzman's share
economy).[91]

Schools[edit]

Multiple schools of economic thought that trace their legacy to Keynes currently exist, the
notable ones being Neo-Keynesian economics, New Keynesian economics, and Post-Keynesian
economics. Keynes's biographer Robert Skidelsky writes that the post-Keynesian school has
remained closest to the spirit of Keynes's work in following his monetary theory and rejecting
the neutrality of money.[92][93] Today these ideas, regardless of provenance, are referred to in
academia under the rubric of "Keynesian economics", due to Keynes's role in consolidating,
elaborating, and popularizing them.

In the postwar era, Keynesian analysis was combined with neoclassical economics to produce
what is generally termed the "neoclassical synthesis", yielding Neo-Keynesian economics,
which dominated mainstream macroeconomic thought. Though it was widely held that there
was no strong automatic tendency to full employment, many believed that if government policy
were used to ensure it, the economy would behave as neoclassical theory predicted. This post-
war domination by Neo-Keynesian economics was broken during the stagflation of the 1970s.
There was a lack of consensus among macroeconomists in the 1980s. However, the advent of
New Keynesian economics in the 1990s, modified and provided microeconomic foundations for
the neo-Keynesian theories. These modified models now dominate mainstream economics.

Post-Keynesian economists, on the other hand, reject the neoclassical synthesis and, in general,
neoclassical economics applied to the macroeconomy. Post-Keynesian economics is a
heterodox school that holds that both Neo-Keynesian economics and New Keynesian
economics are incorrect, and a misinterpretation of Keynes's ideas. The Post-Keynesian school
encompasses a variety of perspectives, but has been far less influential than the other more
mainstream Keynesian schools.

Interpretations of Keynes have emphasized his stress on the international coordination of

Keynesian policies, the need for international economic institutions, and the ways in which
economic forces could lead to war or could promote peace.[94]

Other schools of economics[edit]

The Keynesian schools of economics are situated alongside a number of other schools that have
the same perspectives on what the economic issues are, but differ on what causes them and how
to best resolve them. Today, most of these schools of thought have been subsumed into modern
macroeconomic theory.

Stockholm School[edit]

Main article: Stockholm school (economics)

The Stockholm school rose to prominence at about the same time that Keynes published his
General Theory and shared a common concern in business cycles and unemployment. The
second generation of Swedish economists also advocated government intervention through
spending during economic downturns[95] although opinions are divided over whether they
conceived the essence of Keynes's theory before he did.[96]

Monetarism[edit]

Main article: Monetarism

There was debate between monetarists and Keynesians in the 1960s over the role of government
in stabilizing the economy. Both monetarists and Keynesians agree that issues such as business
cycles, unemployment, and deflation are caused by inadequate demand. However, they had
fundamentally different perspectives on the capacity of the economy to find its own
equilibrium, and the degree of government intervention that would be appropriate. Keynesians
emphasized the use of discretionary fiscal policy and monetary policy, while monetarists argued
the primacy of monetary policy, and that it should be rules-based.[97]

The debate was largely resolved in the 1980s. Since then, economists have largely agreed that
central banks should bear the primary responsibility for stabilizing the economy, and that
monetary policy should largely follow the Taylor rule – which many economists credit with the
Great Moderation.[98][99] The financial crisis of 2007–08, however, has convinced many
economists and governments of the need for fiscal interventions and highlighted the difficulty
in stimulating economies through monetary policy alone during a liquidity trap.[100]

Public choice[edit]

See also: Public choice

Some Marxist economists criticized Keynesian economics.[101] For example, in his 1946
appraisal[102] Paul Sweezy, while admitting that there was much in the General Theory's
analysis of effective demand which Marxists could draw upon, described Keynes as in the last
resort a prisoner of his neoclassical upbringing. Sweezy argued Keynes had never been able to
view the capitalist system as a totality. He argued Keynes had regarded the class struggle
carelessly, and overlooked the class role of the capitalist state, which he treated as a deus ex
machina, and some other points. While Michał Kalecki was generally enthusiastic about the
Keynesian revolution, he predicted that it would not endure, in his article "Political Aspects of
Full Employment". In the article Kalecki predicted that the full employment delivered by
Keynesian policy would eventually lead to a more assertive working class and weakening of the
social position of business leaders, causing the elite to use their political power to force the
displacement of the Keynesian policy even though profits would be higher than under a laissez
faire system: The erosion of social prestige and political power would be unacceptable to the
elites despite higher profits.[103]

James M. Buchanan[104] criticized Keynesian economics on the grounds that governments would
in practice be unlikely to implement theoretically optimal policies. The implicit assumption
underlying the Keynesian fiscal revolution, according to Buchanan, was that economic policy
would be made by wise men, acting without regard to political pressures or opportunities, and
guided by disinterested economic technocrats. He argued that this was an unrealistic assumption
about political, bureaucratic and electoral behaviour. Buchanan blamed Keynesian economics
for what he considered a decline in America's fiscal discipline.[105] Buchanan argued that deficit
spending would evolve into a permanent disconnect between spending and revenue, precisely
because it brings short-term gains, so, ending up institutionalizing irresponsibility in the federal
government, the largest and most central institution in our society.[106] Martin Feldstein argues
that the legacy of Keynesian economics–the misdiagnosis of unemployment, the fear of saving,
and the unjustified government intervention–affected the fundamental ideas of policy
makers.[107] Milton Friedman thought that Keynes's political bequest was harmful for two
reasons. First, he thought whatever the economic analysis, benevolent dictatorship is likely
sooner or later to lead to a totalitarian society. Second, he thought Keynes's economic theories
appealed to a group far broader than economists primarily because of their link to his political
approach.[108] Alex Tabarrok argues that Keynesian politics–as distinct from Keynesian
policies–has failed pretty much whenever it's been tried, at least in liberal democracies. [109]

In response to this argument, John Quiggin,[110] wrote about these theories' implication for a
liberal democratic order. He thought if it is generally accepted that democratic politics is
nothing more than a battleground for competing interest groups, then reality will come to
resemble the model. Paul Krugman wrote "I don’t think we need to take that as an immutable
fact of life; but still, what are the alternatives?" [111] Daniel Kuehn, criticized James M.
Buchanan. He argued, "if you have a problem with politicians - criticize politicians," not
Keynes.[112] He also argued that empirical evidence makes it pretty clear that Buchanan was
wrong.[113][114] James Tobin argued, if advising government officials, politicians, voters, it's not
for economists to play games with them.[115] Keynes implicitly rejected this argument, in "soon
or late it is ideas not vested interests which are dangerous for good or evil." [116][117]
Brad DeLong has argued that politics is the main motivator behind objections to the view that
government should try to serve a stabilizing macroeconomic role.[118] Paul Krugman argued that
a regime that by and large lets markets work, but in which the government is ready both to rein
in excesses and fight slumps is inherently unstable, due to intellectual instability, political
instability, and financial instability.[119]

New classical[edit]

Main article: New classical macroeconomics

See also: Lucas critique

Another influential school of thought was based on the Lucas critique of Keynesian economics.
This called for greater consistency with microeconomic theory and rationality, and in particular
emphasized the idea of rational expectations. Lucas and others argued that Keynesian
economics required remarkably foolish and short-sighted behaviour from people, which totally
contradicted the economic understanding of their behaviour at a micro level. New classical
economics introduced a set of macroeconomic theories that were based on optimizing
microeconomic behaviour. These models have been developed into the real business-cycle
theory, which argues that business cycle fluctuations can to a large extent be accounted for by
real (in contrast to nominal) shocks.

Beginning in the late 1950s new classical macroeconomists began to disagree with the
methodology employed by Keynes and his successors. Keynesians emphasized the dependence
of consumption on disposable income and, also, of investment on current profits and current
cash flow. In addition, Keynesians posited a Phillips curve that tied nominal wage inflation to
unemployment rate. To support these theories, Keynesians typically traced the logical
foundations of their model (using introspection) and supported their assumptions with statistical
evidence.[120] New classical theorists demanded that macroeconomics be grounded on the same
foundations as microeconomic theory, profit-maximizing firms and rational, utility-maximizing
consumers.[120]

The result of this shift in methodology produced several important divergences from Keynesian
macroeconomics:[120]

1. Independence of consumption and current income (life-cycle permanent income

hypothesis)
2. Irrelevance of current profits to investment (Modigliani–Miller theorem)
3. Long run independence of inflation and unemployment (natural rate of unemployment)
4. The inability of monetary policy to stabilize output (rational expectations)
5. Irrelevance of taxes and budget deficits to consumption (Ricardian equivalence)

See also[edit]

 Business and economics portal

  Job guarantee

References[edit]

1. ^ "What Is Keynesian Economics? - Back to Basics - Finance & Development, September

2014". www.imf.org.
2. ^ Hunt, Michael H. (2004). The World Transformed: 1945 to the present. New York, New
York: Oxford University Press. p. 80. ISBN 9780199371020.
3. ^ O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper
Saddle River: Pearson Prentice Hall. ISBN 0-13-063085-3.
4. ^ Blinder, Alan S. "Keynesian Economics". Concise Encyclopedia of Economics. Library
of Economics and Liberty. Retrieved 23 August 2017.
5. ^ Jump up to: a b Fletcher, Gordon (1989). The Keynesian Revolution and Its Critics:
Issues of Theory and Policy for the Monetary Production Economy. Palgrave MacMillan.
pp. xix–xxi, 88, 189–91, 234–38, 256–61. ISBN 0-312-45260-8.
6. ^ "Economic Crisis Mounts in Germany". Der Spiegel. 4 November 2008. Retrieved
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7. ^ Glasner, David (1997). "Attwood, Thomas (1783–1856)". In Glasner, David. Business
Cycles and Depressions: An Encyclopedia. Taylor & Francis. p. 22. ISBN 0-8240-0944-
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8. ^ Ohlin, Bertil (1937). "Some Notes on the Stockholm Theory of Savings and Investment".
Economic Journal.
9. ^ Nash, Robert T.; Gramm, William P. (1969). "A Neglected Early Statement the Paradox
of Thrift". History of Political Economy. 1 (2): 395–400. doi:10.1215/00182702-1-2-395.
10.^ Robertson, John M. (1892). The Fallacy of Saving.
11.^ Robert Dimand, The origins of the Keynesian revolution, p. 7.
12.^ Dimand, op. cit., p. 23.
13.^ Dimand, op. cit., p31.
14.^ Dimand, op. cit., p. 36.
15.^ Dimand, op. cit., p35.
16.^ Dimand, op. cit., p. 38.
17.^ Dimand, op. cit., p133.
18.^ Dimand, op. cit., pp. 136–141.
19.^ Editorial introduction to the General Theory  in Keynes's Collected Writings.
20.^ Say, Jean-Baptiste (2001). A Treatise on Political Economy; or the Production
Distribution and Consumption of Wealth. Kitchener: Batoche Books.
21.^ Ricardo, David (1871). On The Principles of Political Economy and Taxation.
22.^ 1929 general election, Liberal Democrat History Group.
23.^ Dimand, op. cit., pp102f.
24.^ He had been working on the book since 1923, and finally signed the preface on 14
September 1930. Dimand, op. cit., p. 119.
25.^ Dimand, op. cit., pp92f.
26.^ Kahn, The making of the General Theory , p92.
27.^ Published in The Economic Journal.
28.^ Guide to Keynes (1953), p. 88.
29.^ Kahn, The making of the General Theory , p. 95.
30.^ P. A. Samuelson, Economics: an introductory analysis, 1948 and many subsequent
editions. 16th edition consulted.
31.^ Introduction to the Theory of Employment, which she described as a "told-to-the-
children" account (letter to Keynes included in his Collected Writings vol XXIX, p185),
referring to a series of retellings of classic stories.
32.^ The failure of the new economics, 1959, pp148f.
33.^ "International difficulties arising out of the financing of public works during
depressions", Economic Journal, 1932.
34.^ See Dimand, op. cit., p. 114. Kahn's presentation is more complicated owing to the
inclusion of dole and other factors.
35.^ Dimand, op. cit., pp. 107–110.
36.^ Dimand, op. cit., pp105-107.
37.^ Eli Heckscher, Mercantilism (1931, English tr. 1935), vol II, p. 202.
38.^ Dimand, op. cit., pp117f.
39.^ Kahn, The making of the General Theory , p. 101.
40.^ Kahn, op. cit., p78.
41.^ Kahn, op. cit., p. 79, quoting from Keynes's collected writings.
42.^ Kahn, op. cit., pp83f, quoting the Committee minutes.
43.^ Kahn, op. cit., p. 96, quoting a study by Susan Howson and Donald Winch.
44.^ Dimand, op. cit., p158.
45.^ Cited by Kahn, op. cit., p. 193.
46.^ Kahn, op. cit., p. 193.
47.^ Dimand, op. cit., p. 76.
48.^ Chapter 2, §I.
49.^ Chapter 2, §II.
50.^ General Theory, pp. 63, 61.
51.^ Chapter 11.
52.^ Chapter 8.
53.^ Reply to Viner. See below.
54.^ Based on the one in Keynes’s Chapter 14.
55.^ Chapter 10.
56.^ Chapter 18.
57.^ P. A. Samuelson, Economics: an introductory analysis 1948 and many subsequent
editions.
58.^ Chapter 3.
59.^ p. 115.
60.^ p122.
61.^ p. 124. See a discussion in the work by G. M. Ambrosi cited below, and also Mark
Hayes's statement that "the 'sequence' multiplier of Old Keynesian economics cannot be
found in The General Theory" ("The Economics of Keynes: A New Guide to The
General Theory (2006), p. 120).
62.^ Chapter 18, p. 245.
63.^ Chapter 14, p. 184.
64.^ Chapter 18, p. 248.
65.^ Time in economics (1958).
66.^ G. M. Ambrosi, Keynes, Pigou and Cambridge Keynesians (2003).
67.^ On p115.
68.^ See The General Theory of Employment, Interest and Money.
69.^ D. H. Robertson, "Some Notes on Mr. Keynes' General Theory of Interest", Quarterly
Journal of Economics, 1936
70.^ "Mr. Keynes and the 'Classics'; A Suggested Interpretation", Econometrica, 1937.
71.^ P. R. Krugman, "It's baaack: Japan's slump and the return of the liquidity trap",
Brookings papers on economic activity, 1998.
72.^ P. R. Krugman, Introduction to the General Theory..., 2008.
73.^ Richard Kahn, The Making of Keynes' General Theory, pp. 160 and 248.
74.^ "I Think Keynes Mistitled His Book". The Washington Post. 26 July 2011. Retrieved
2011-08-13.
75.^ Crowther, Geoffrey (1948). An Outline of Money. Second Edition. Thomas Nelson and
Sons. pp. 326–29.
76.^ Staff, Investopedia (25 November 2003). "Deregulation".
77.^ Staff, Investopedia (3 April 2010). "Trade Liberalization".
78.^
http://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1127&context=peri_workingp
apers
79.^ Joseph Stiglitz (5 May 2010). "Reform the euro or bin it". www.theguardian.com.
80.^
http://www.uam.es/personal_pdi/economicas/jsanchez/documentos/1601%20KEYNES%
20National%20Self-sufficiency%201933.pdf
81.^ "601 David Singh Grewal, What Keynes warned about globalization". www.india-
seminar.com.
82.^ Crowther, Geoffrey (1948). An Outline of Money. Second Edition. Thomas Nelson and
Sons. p. 336.
83.^ Crowther, Geoffrey (1948). An Outline of Money. Second Edition. Thomas Nelson and
Sons. pp. 368–72.
84.^ Crowther, Geoffrey (1948). An Outline of Money. Second Edition. Thomas Nelson and
Sons.
85.^ See for example, Krugman, P and Wells, R (2006). "Economics", Worth Publishers
86.^ although see Duncan, R (2005). "The Dollar Crisis: Causes, Consequences, Cures",
Wiley
87.^ See for example,"Clearing Up This Mess". 18 November 2008. Archived from the
original on 23 January 2009.
88.^ "What eventually became known as textbook Keynesian policies were in many ways
Lerner's interpretations of Keynes's policies, especially those expounded in The
Economics of Control (1944) and later in The Economics of Employment (1951). ...
Textbook expositions of Keynesian policy naturally gravitated to the black and white
'Lernerian' policy of Functional Finance rather than the grayer Keynesian policies. Thus,
 the vision that monetary and fiscal policy should be used as a balance wheel, which forms
a key element in the textbook policy revolution, deserves to be called Lernerian rather
than Keynesian." (Colander 1984, p. 1573)
89.^ Jump up to: a b Lewis, Paul (15 August 1976). "Nixon's Economic Policies Return to
Haunt the G.O.P." The New York Times.
90.^ Krugman, Paul. "Trash Talk and the Macroeconomic Divide". Retrieved 10 September
2015.
91.^ Blinder, Alan S. (1987). Hard Heads, Soft Hearts: Tough Minded Economics for a Just
Society. New York: Perseus Books. pp. 65–66. ISBN 0-201-14519-7.
92.^ Skidelsky 2009
93.^ Financial markets, money and the real world, by Paul Davidson, pp. 88–89
94.^ Markwell, Donald (2006). John Maynard Keynes and International Relations:
Economic Paths to War and Peace. New York: Oxford University Press. ISBN 0-19-
829236-8.
95.^ Jonung, Lars (1991). The Stockholm School of Economics Revisited. Cambridge
University Press. p. 5.
96.^ Jonung, Lars (1991). The Stockholm School of Economics Revisited. Cambridge
University Press. p. 18.
97.^ Abel, Andrew; Ben Bernanke (2005). "14.3". Macroeconomics (5th ed.). Pearson
Addison Wesley. pp. 543–57. ISBN 0-321-22333-0.
98.^ Bernanke, Ben (February 20, 2004). "The Great Moderation". federalreserve.gov.
Retrieved 15 April 2011.
99.^ Federal Reserve Bank of Chicago, Monetary Policy, Output Composition and the Great
Moderation, June 2007
100. ^ Henry Farrell and John Quiggin (March 2012). "Consensus, Dissensus and
Economic Ideas: The Rise and Fall of Keynesianism During the Economic Crisis" (PDF).
The Center for the Study of Development Strategies. Archived from the original (pdf) on
25 August 2013. Retrieved 2012-05-29.
101. ^ Michael Charles Howard, John Edward King. A History of Marxian Economics,
Volume II: 1929-1990. Princeton Legacy library. pp. 91–108.
102. ^ Sweezy, P. M. (1946). "John Maynard Keynes". Science and Society: 398–405.
103. ^ Kalecki (1943). "Political Aspects of Full Employment". Monthly Review. The
Political Quarterly. Retrieved 2012-05-02.
104. ^ James M. Buchanan and Richard E. Wagner, Democracy in Deficit: The Political
Legacy of Lord Keynes (1977)
105. ^ Robert D. McFadden, James M. Buchanan, Economic Scholar and Nobel
Laureate, Dies at 93, New York Times, January 9, 2013
106. ^ Tyler Cowen, It's Time to Face the Fiscal Illusion, New York Times, March 5,
2011
107. ^ Feldstein, Martin (Summer 1981). "The retreat from Keynesian economics". The
Public Interest: 92–105.
108. ^ Friedman, Milton (1997). "John Maynard Keynes". FRB Richmond Economic
Quarterly. 83: 1–23.
109. ^ "The Failure of Keynesian Politics" (2011)
 110. ^ John Quiggin, Public choice = Marxism
111. ^ Paul Krugman, "Living Without Discretionary Fiscal Policy" (2011)
112. ^ Daniel Kuehn, Democracy in Deficit: Hayek Edition,
113. ^ Daniel Kuehn, Yes, a lot of people have a very odd view of the 1970s
114. ^ Daniel Kuehn, The Significance of James Buchanan
115. ^ Snowdon, Brian, Howard R. Vane (2005). Modern Macroeconomics: Its Origin,
Development and Current State. p. 155.
116. ^ Keynes, John Maynard (1936). The General Theory Of Employment, Interest And
Money.
117. ^ Peacock, Alan (1992). Public Choice Analysis in Historical Perspective.
Cambridge University Press. p. 60.
118. ^ J. Bradford DeLong, "The Retreat of Macroeconomic Policy", Project Syndicate,
November 25, 2010
119. ^ Paul Krugman, "The Instability of Moderation" (November 26, 2010)
120. ^ Jump up to: a b c Akerlof, George A. (2007). "The Missing Motivation in
Macroeconomics". American Economic Review. 97 (1): 5–36. doi:10.1257/aer.97.1.5.

Further reading[edit]

 Ambrosi, G. Michael (2003). Keynes, Pigou and Cambridge Keynesians. Basingstoke:

Palgrave Macmillan. Thorough and entertaining intellectual history.
 Dimand, Robert (1988). The origins of the Keynesian revolution. Aldershot: Edward
Elgar. Study of the evolution of Keynes's ideas.
 Gordon, Robert J. (1990). "What Is New-Keynesian Economics?". Journal of Economic
Literature. 28 (3): 1115–71. JSTOR 2727103.
 Hansen, Alvin (1953). A guide to Keynes. New York: McGraw Hill. A thorough and
thoughtful reader's guide.
 Hazlitt, Henry (1995) [1960]. The critics of Keynesian economics. Van Nostrand.
ISBN 1-57246-013-X. A useful collection of critical reviews.
 Hicks, John (1967). Critical essays in monetary theory. Oxford: OUP. ISBN 0-19-
828423-3. Contains “Mr Keynes and the classics” and other essays relating to Keynes.
 Khan, Richard (1984). The making of Keynes' General Theory. Cambridge: CUP.
ISBN 0-521-25373-X. Lectures and discussion from a colloquium in 1978.
 Keynes, John Maynard (2007) [1936]. The General Theory of Employment, Interest and
Money. Basingstoke, Hampshire: Palgrave Macmillan. ISBN 0-230-00476-8.
 Keynes, John Maynard (Feb. 1937). "Reply to Viner". Quarterly Journal of Economics,
vol. 51, no. 2, pp. 209–223. A valuable paper in which Keynes restates many of his ideas
in the light of criticisms. It has no agreed title and is also known as "The General Theory
of Employment" or as "the 1937 QJE paper".
 Keynes, John Maynard (1973). The collected writings of John Maynard Keynes. London
and Basingstoke: Macmillan for the Royal Economic Society. Edited by Sir Austin
Robinson and Donald Moggridge. Vol VII is the General Theory ; Vols XIII and XIV
contain writings on its preparation, defence and development.
  Markwell, Donald, John Maynard Keynes and International Relations: Economic Paths
to War and Peace, Oxford University Press, 2006. ISBN 9780198292364
 McCann, Charles R., Jr. (1998). John Maynard Keynes: critical responses. Routledge.
Not easily obtainable. Vol 3 contains reviews of the General Theory.
 Stein, Jerome L. (1982). Monetarist, Keynesian & New classical economics. Oxford:
Blackwell. Works by John Maynard Keynes at Project Gutenberg

 "We are all Keynesians now" – Historic article from Time magazine, 1965

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Priority Development Assistance Fund scam

From Wikipedia, the free encyclopedia
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This article needs to be updated. Please update this article to reflect recent events or
newly available information. (February 2014)

The Priority Development Assistance Fund scam, also called the PDAF scam or the pork barrel
scam, is a political scandal involving the alleged misuse by several members of the Congress of
the Philippines of their Priority Development Assistance Fund (PDAF, popularly called "pork
barrel"), a lump-sum discretionary fund granted to each member of Congress for spending on
priority development projects of the Philippine government, mostly on the national level.

The scam was first exposed in the Philippine Daily Inquirer on July 12, 2013,[1] with the six-
part exposé of the Inquirer on the scam pointing to businesswoman Janet Lim-Napoles as the
scam's mastermind after Benhur K. Luy, her second cousin and former personal assistant, was
rescued by agents of the National Bureau of Investigation on March 22, 2013, four months after
he was detained by Napoles at her unit at the Pacific Plaza Towers in Fort Bonifacio.[2] Initially
centering on Napoles' involvement in the 2004 Fertilizer Fund scam, the government
investigation on Luy's testimony has since expanded to cover Napoles' involvement in a wider
scam involving the misuse of PDAF funds from 2003 to 2013.

It is estimated that the Philippine government was defrauded of some ₱10 billion in the course
of the scam,[1] having been diverted to Napoles, participating members of Congress and other
government officials. Aside from the PDAF and the fertilizer fund maintained by the
Department of Agriculture, around ₱900 million in royalties earned from the Malampaya gas
field were also lost to the scam.[3] The scam has provoked public outrage, with calls being made
on the Internet for popular protests to demand the abolition of the PDAF,[4] and the order for
Napoles' arrest sparking serious discussion online.[5]
Two infographs on the PDAF produced by the Assembly, the Political Science Organization of
the Ateneo de Manila University.
Main article: Priority Development Assistance Fund

Although the history of pork barrel-like discretionary funds in the Philippines dates back to
1922,[6] during the American colonial period, the PDAF in its current form was only established
during the administration of Corazon Aquino with the creation of the Countrywide
Development Fund (CDF) in 1990. With ₱2.3 billion in initial funding, the CDF was designed
to allow legislators to fund small-scale infrastructure or community projects which fell outside
the scope of the national infrastructure program, which was often restricted to large
infrastructure items. The CDF was later renamed the PDAF in 2000, during the administration
of Joseph Estrada.[7]

Since 2008, every member of the House of Representatives usually receives an annual PDAF
allocation of ₱70 million, while every senator receives an annual allocation of ₱200 million.[8]
The President also benefits from a PDAF-like allocation, the President's Social Fund (PSF),
worth around ₱1 billion.[9] Contrary to public belief, however, PDAF allocations are not
actually released to members of Congress. Rather, disbursements under the PDAF are coursed
via implementing agencies of the Philippine government, and are limited to "soft" and "hard"
projects: the former largely referring to non-infrastructure projects (such as scholarships and
financial assistance programs, although small infrastructure projects are also considered "soft"
projects), and the latter referring to infrastructure projects which would be coursed via the
Department of Public Works and Highways.[7]

Because presidential systems are often prone to political gridlock, the PDAF is often used as a
means to generate majority legislative support for the programs of the executive.[10]
Furthermore, because PDAF allocations are released by the Department of Budget and
Management (DBM), PDAF allocations are often dependent on the relationship a legislator has
with the sitting President.[10] For example, during the latter years of the Gloria Macapagal-
Arroyo administration, she was more generous in allocating PDAF funds in the annual national
budget in order to win the favor of legislators.[8] PDAF allocation has gradually increased over
the years.[10] For example, before Arroyo stepped down, the last PDAF allocated was for the
year 2010 at ₱10.86 billion, but when the Benigno Aquino III administration passed its first
budget for 2011, the allocation more than doubled to ₱24.62 billion.[11]

The PDAF has proven to be very unpopular, with numerous calls for its abolition. In 1996, the
Philippine Daily Inquirer published an exposé on systematic corruption in the CDF, with an
anonymous congressman (since identified as Romeo D. Candazo of Marikina) elaborating how
legislators and other government officials earned from overpricing projects in order to receive
large commissions. Public outrage over the misuse of the CDF was instrumental in the
enactment of reforms which led to the formation of the PDAF.[12] The constitutionality of the
PDAF has also been challenged in the Supreme Court. In 1994, the constitutionality of the CDF
was challenged by the Philippine Constitution Association, arguing that the CDF's mechanisms
encroach on the executive's power of implementing the budget passed by the legislature, but the
Court ruled the CDF constitutional under the legislative's "power of the purse".[13] This ruling
was reaffirmed in 2001, when the PDAF was challenged again in the Supreme Court.[7]
Legislators themselves are torn on the abolition of the PDAF, with some supporting total
abolition, others supporting increased regulation to minimize abuse of PDAF disbursements,
and others opposed to it.[14]

Modus operandi[edit]

A graphic representation of the PDAF scam's modus operandi produced by the Assembly.

The PDAF or pork barrel scam involved the funding of "ghost projects" that were funded using
the PDAF funds of participating lawmakers.[15] These projects were in turn "implemented"
through Napoles' companies, with the projects producing no tangible output. According to
testimony provided by Benhur Luy's brother, Arthur, funds would be processed through fake
foundations and non-governmental organizations (NGOs) established under the wing of the
JLN Group of Companies, the holding company of Janet Lim-Napoles, with Napoles'
employees—even a nanny—named as incorporators or directors.[16] Each foundation or NGO
served as an official recipient of a particular legislator's PDAF funds, and each organization had
a number of bank accounts where PDAF funds would be deposited for the implementation of
these projects.[15]

Napoles, who specialized in trading agricultural products, frequently used the procurement of
agricultural inputs in the propagation of the scam. Either her employees would write to
legislators requesting for funds for the implementation of a particular project (e.g. farm inputs),
or a legislator would indicate to the DBM a particular recipient agency for his or her PDAF
funds that would be pre-selected by Napoles.[17] Once received, this is forwarded to the DBM,
which would then issue a Special Allotment Release Order (SARO) indicating the amount
deducted from the legislator's PDAF allocation, and later a Notice of Cash Allocation (NCA)
given to the recipient agency. The NCA would then be deposited in one of the foundation's
accounts, and the funds withdrawn in favor of the JLN Group of Companies. [16] The funds
would then be split between Napoles, the lawmaker, the official of the DA responsible for
facilitating the transfer of funds and, for good measure, the local mayor or governor.[15] The
JLN Group of Companies offered a commission of 10-15% against funds released to local
government units and recipient agencies of PDAF funds, while a legislator would receive a
commission of between 40-50% against the total value of his/her PDAF.[17]

Letters sent by Napoles' employees to participating legislators would also include a letter from a
local government unit requesting for funding, bearing the forged signature of the local mayor or
governor. All documents involving local government units were prepared by Napoles' staff, and
Benhur Luy would forge the signature of the local mayor or governor. Local government
officials who were used by Napoles were often unaware that they were participating in the
scam.[16] In other instances, however, Napoles would use emissaries to establish contact with
local mayors in exchange for commissions that would come from the implementation of these
projects.[15]

Every recipient agency participating in the scam had employees or officials that maintained
contact with Napoles, allowing for the smooth processing of transactions and the expedient
release of PDAF funds to her organizations. Most importantly, Napoles was in regular contact
with the DBM through Undersecretary for Operations Mario L. Relampagos,[18] who had three
employees (identified as Leah, Malou and Lalaine) responsible for the processing of SAROs
destined for Napoles' organizations.[17]

Accused parties[edit]
See also: List of implicated parties to the Priority Development Assistance Fund scam

In the initial report published by the Philippine Daily Inquirer, 28 members of Congress (five
senators and 23 representatives) were named as participants in the PDAF scam. Twelve of these
legislators were identified by the newspaper, and close to ₱3 billion in PDAF funds coming
from these legislators alone were exposed to the scam. Notably, the Inquirer named Bong
Revilla, Juan Ponce Enrile, Jinggoy Estrada, Bongbong Marcos and Gregorio Honasan as the
five senators who participated in the scam. Revilla was the largest contributor among the 28
legislators, with around ₱1.015 billion of his PDAF funds being transferred to organizations
identified with the JLN Group of Companies, although the extent to which legislators
participated in the scam varied widely.[19]

Members of the Senate & Congress identified by

the Inquirer as participants in the PDAF scam[19]

Amount
Legislator Chamber Party
exposed

Bong ₱1.015
Senate Lakas
Revilla billion
 Juan Ponce ₱641.65
Senate PMP
Enrile million

Jinggoy ₱585
Senate PMP
Estrada million

Rizalina
House of ₱137.29
Seachon- NPC
Representatives million
Lanete

Bongbong ₱100
Senate Nacionalista
Marcos million

Conrado House of ₱97

NPC
Estrella III Representatives million

Edgar L. House of ₱85

APEC
Valdez Representatives million

Rodolfo House of ₱81.5

NPC
Plaza Representatives million

Erwin House of ₱65.35

Lakas
Chiongbian Representatives million

Samuel House of ₱62

Lakas
Dangwa Representatives million

Robert
House of ₱41
Raymund Abono
Representatives million
Estrella

Gregorio ₱15
Senate Independent
Honasan million

₱2.928
TOTAL
billion

Other legislators identified by the Inquirer as participating in the scam include La Union
Representative Victor Ortega and former Representative Arthur Pingoy. Early reports had also
identified Senator Loren Legarda as one of the participants in the scam,[20] but Luy later denied
her participation.[19]

Legislators identified by the Inquirer as participants in the PDAF scam—Bong Revilla in

particular—have denied their participation in the scam. All senators except Jinggoy Estrada
denied any knowledge of the scheme (Estrada refused to comment), and Marcos denied being
acquaintances with Janet Lim-Napoles.[21] Revilla and Marcos have also claimed that the
investigation into the scam is politically motivated, saying that Malacañang is out to discredit
potential candidates for the 2016 presidential election who are not allied with President Aquino:
a charge that the administration denies.[22] However, both Revilla and Marcos, as well as
Honasan,[21] have indicated their willingness to participate in any investigation, saying that they
have nothing to hide.[23]

On August 16, 2013, the Commission on Audit released the results of a three-year investigation
into the use of legislators' PDAF and other discretionary funds during the last three years of the
Arroyo administration. The report not only affirmed the Inquirer s findings, but also pointed to
more legislators being privy to misuse of their PDAF funds. According to the report, between
2007 and 2009, ₱6.156 billion in PDAF funds coming from 12 senators and 180 representatives
were disbursed to fund 772 projects found to be implemented in ways that were "not proper and
highly irregular".[24] Of the 82 NGOs implementing those projects, ten are linked to Napoles.[25]
The report also elaborates on "questionable" transactions made using the PDAF: ₱1.054 billion
went to NGOs which were either unregistered, used multiple Tax Identification Numbers (TIN),
or issued questionable receipts; while ₱1.289 billion in PDAF disbursements spent were not
compliant with the Government Procurement Reform Act of 2003. Lawmakers from across the
political spectrum, both past and present, were cited in the report, some of whom (such as
Edgardo Angara, Ruffy Biazon, Neptali Gonzales II and Niel Tupas, Jr.) are closely related to
President Aquino.[26] Some legislators also donated PDAF funds to NGOs they themselves are
affiliated with: these include Angara, Victoria Sy-Alvarado and Matias Defensor, Jr..[27]

Other government officials have been implicated as well in the PDAF scam. Agriculture
Secretary Proceso Alcala, for example, was accused by Merlina Suñas, Luy's fellow
whistleblower, of being complicit in the scam, as his department was responsible for
transferring at least ₱16 million in PDAF funds to livelihood projects managed by an NGO
linked to Napoles.[28] 97 mayors were also implicated in the scam in connection with the
allocation of Malampaya gas field royalties as reconstruction aid for areas affected by Typhoons
Ondoy and Pepeng which instead went to Napoles, after it was discovered that employees of the
JLN Group of Companies forged their signatures to make it appear that they were requesting for
aid.[29] 44 other mayors were likewise implicated in the scam when Napoles, through fashion
designer Eddie Baddeo, reportedly facilitated requests for disbursements from the Department
of Agriculture's Agricultural Competitiveness Enhancement Fund (ACEF) on behalf of their
municipalities.[30] A number of mayors have denied involvement in the scam, including three
mayors from Bataan,[31] seven from Ilocos Norte,[32] one from Pangasinan,[33] and one from
Iloilo.[34]

A second batch of criminal charges was filed by the National Bureau of Investigation on 33
individuals, including Bureau of Customs Commissioner Ruffy Biazon, who is the first political
ally and party-mate of President Benigno Aquino III who has been charge in relation to the
scam. [35]
Another batch of names were extracted during Janet Lim-Napoles's stay in Ospital ng Makati
for surgical removal of her ovarian cyst. Over 100 Representatives, 2 Cabinet officials and more
than 20 current and former Senators are being investigated. Panfilo Lacson claimed he also has
another list. The Philippine Daily Inquirer claims it received a hard drive containing all
transactions of Napoles, Luy and other JLN Corporation agents from the accused politicians.

Investigation[edit]

A number of investigations are currently ongoing or will be organized to determine the extent
of the PDAF scam. On July 16, 2013, the Office of the Ombudsman announced that it was
forming a special six-person panel initially to investigate the projects bankrolled by the 23
legislators originally named in the Philippine Daily Inquirer, in parallel with the NBI
investigation against Napoles.[36] The next day, President Aquino ordered the Department of
Justice to conduct and "extensive and fair probe" of the scam,[37] which Napoles also asked for
on July 27.[38] Despite calls for the investigation to be made open to the public, Justice Secretary
Leila de Lima refused, stating at the time that it was too early for the DOJ investigation to be
made public when the NBI was still gathering data on the scam.[39]

Members of Congress have also called for parallel investigations in both the Senate and the
House of Representatives as to the extent of the scam. Despite calls by Senator Francis
Escudero to have the scam investigated,[40] the Senate initially agreed not to investigate the
scam on August 5, instead opting to wait for the results of the investigations being conducted by
the DOJ, the Ombudsman, the NBI and the Commission on Audit before launching its own
investigation.[41] However, following the release of the CoA report which implicated more
legislators in the scam, the Senate eventually agreed to conduct its own investigation, which
would be led by its Blue Ribbon Committee.[42]

The House of Representatives, meanwhile, has refused to conduct a probe, with Speaker
Feliciano Belmonte, Jr. claiming that the House investigating its own members would be
"messy", instead preferring to wait for the results of the DOJ investigation.[43] This is despite the
clamor from a number of representatives, mostly from the minority bloc not allied with
President Aquino, that the House should conduct its own investigation into the matter. [44]

Following the release of the CoA report, the DOJ is expected to expand its investigation beyond
the evidence originally provided by Luy and the other Napoles whistleblowers. It is also
looking at forming either a joint or a parallel investigation with the Ombudsman and the NBI,
although its main focus for the time being is on Napoles' involvement in the scam. [45]

Napoles surrendered to President Benigno Aquino III at 9:37 pm on August 28. The president
gave the DILG secretary Mar Roxas and PNP director Gen. Alan Purisima custody over
Napoles for booking and processing.[46]

The NBI and Justice Secretary, Leila De Lima filed the cases of plunder and malversation of
public funds against businesswoman Janet Lim-Napoles, senators Ramon Revilla Jr., Juan
Ponce Enrile, Jinggoy Estrada and five former representatives on September 16.[47]
On November 19, 2013, The Supreme Court declared PDAF as unconstitutional.[48]

Reactions[edit]

 Cardinal Luis Antonio Tagle, Archbishop of Manila – during a press conference at the
University of Santo Tomas, Cardinal Tagle described the scandal as part of an "intricate
web of corruption", and said that it is right that the issue be investigated. He added that
those involved in the scam have "lost touch with the poor" and should visit a community
of informal settlers to understand the issues poor Filipinos face on a daily basis. "We
have heard many other big scandals in the past but these were buried and forgotten when
a new issue came up", the cardinal added.[49]
 Renato Reyes Jr., Secretary-General of BAYAN coalition – Reyes described the scandal
as a "bigger test for the Department of Justice". He also said that the coalition remains
doubtful if those involve in the alleged scam will be held liable, including those
perceived to be allied with the Aquino administration. Reyes also accused the House of
Representatives and Senate for covering up the scam and refusing to open an
investigation. BAYAN also re-iterated its call for the complete abolition of the PDAF.[50]
 The Philippine Supreme Court issuing (September 10, 2013) a temporary restraining
order (TRO) against the release of the remaining Priority Development Assistance Funds
(PDAF) of lawmakers for 2013 and Malampaya funds.[51]

Protests[edit]
See also: Million People March

On August 26, 2013, thousands of people went to Luneta Park in protest against the pork barrel
scheme. The gathering was dubbed the "Million People March". After this, a prayer vigil
dubbed "EDSA Tayo" was held on September 11 at the EDSA Shrine, where around 500-700
people attended the vigil.[52] Two days later another protest was held at Luneta where, according
to police estimates, about 3,000 people participated.[53] The organizers stated that another rally
dubbed "Level Up" would be scheduled for September 21 (with a noise barrage held before the
event), and another "Million People March" protest would be held in December. [53][54]

See also[edit]

 People's Initiative Against Pork Barrel

References[edit]

1. ^ Jump up to: a b Carvajal, Nancy C. (July 12, 2013). "NBI probes P10-B scam".
Philippine Daily Inquirer. Philippine Daily Inquirer, Inc. Retrieved August 19, 2013.
2. ^ Lawas, Hector (April 5, 2013). "NBI pressing abduction quiz". People's Journal.
Philippine Journalists, Inc. Retrieved August 19, 2013.
3. ^ Carvajal, Nancy C. (July 16, 2013). "Malampaya fund lost P900M in JLN racket".
Philippine Daily Inquirer. Philippine Daily Inquirer, Inc. Retrieved August 19, 2013.
4. ^ "From Facebook to Luneta: Anti-pork protest spills into streets August 26". GMA News
and Public Affairs. August 18, 2013. Retrieved August 19, 2013.
5. ^ Go, Dominic Gabriel (August 15, 2013). "Napoles arrest story spikes on social media".
Rappler. Rappler, Inc. Retrieved August 19, 2013.
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13.^ Philippine Constitution Association v. Enriquez, et al., G.R. No. 113105, August 19,
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14.^ Martin, Sammy F. (July 16, 2013). "House divided on pork barrel abolition".
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scam'?". Good Morning Club (in Filipino). TV5.
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18.^ "DBM Directory". Official Website of the Department of Budget and Management.
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accusation: No time for that". GMA News and Public Affairs. Retrieved August 20, 2013.
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scam". Central Luzon Daily. Central Luzon Daily, Inc. Retrieved August 20, 2013.
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scam" (in Filipino). Bombo Radyo Laoag. August 16, 2013. Retrieved August 20, 2013.
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scam". ABS-CBN News and Current Affairs. Retrieved August 20, 2013.
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Daily Inquirer. Philippine Daily Inquirer, Inc. Retrieved August 23, 2013.
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Philippine Star. PhilStar Daily, Inc. Retrieved August 23, 2013.
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scam". People's Journal. Philippine Journalists, Inc. Retrieved August 23, 2013.
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exposé". Rappler. Rappler, Inc. Retrieved August 23, 2013.
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now". Rappler. Rappler, Inc. Retrieved August 23, 2013.
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urges senators". Sun.Star Manila. Sun.Star Publishing, Inc. Retrieved August 23, 2013.
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eyed". The Philippine Star. PhilStar Daily, Inc. Retrieved August 23, 2013.
46.^ Napoles surrenders to Aquino | Inquirer News
47.^ Plunder raps filed vs Napoles, 3 'pork' senators |The Philippine Star
48.^ SC declares PDAF unconstitutional | The Philippine Star
49.^ Pork scam moves Tagle to tears | Inquirer News
50.^ Bayan doubts DOJ probe on pork barrel scam |The Philippine Star
51.^ SC orders release of 2013 pork stopped immediately | Inquirer News
52.^ De Jesus, Julliane Love (September 11, 2013). "'EDSA Tayo' rally declared a
'success'". Philippine Daily Inquirer. Retrieved September 14, 2013.
53.^ Jump up to: a b Gagalac, Ron. "Anti-pork barrel protesters gather in Luneta [again]".
ABS-CBN News. Retrieved September 14, 2013.
54.^ Carcamo, Dennis (September 18, 2013). "Groups gear up for big anti-pork barrel
rally". The Philippine Star. Retrieved September 20, 2013.

show

 v
 t
 e

Scams and confidence tricks



show

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Benigno Aquino III


 

 2010 elections
o Death and funeral of Corazon Aquino
o Aquino-Roxas 2010
o Aquino–Binay 2010
Elections o Transition
and o Inauguration
inauguration o Inaugural address
o SONA (2010)
 2013 elections
 2016 elections
o Roxas-Robredo 2016

 Reproductive Health Bill

 K-12 Program
Landmark  Disbursement Acceleration Program
laws  Framework Agreement on the Bangsamoro
and  Anti-Cybercrime Law
agreements  Creation of the Negros Island Region and the Department of 
Information and Communications Technology

 Typhoons
o Washi (Sendong)
o Haiyan (Yolanda)
o Bopha (Pablo)
o Hagupit (Ruby)
Natural
o Koppu (Lando)
disasters
o Melor (Nona)
 Earthquakes
o Negros
o Bohol/Cebu

 Extrajudicial killings
 2011 AFP corruption scandal
 Impeachments
Domestic o Merceditas Gutierrez
incidents/ o Renato Corona
issues  Masbate plane crash and Death of Jesse Robredo
 Pork barrel scam and Million People March
 Zamboanga City crisis
 Operation Darkhorse
  2014 Bukidnon bus bombing
 New Bilibid Prison raids
 Mamasapano clash
 Kentex slipper factory fire
 2015 MRT-3 controversy
 Iglesia ni Cristo leadership controversy and protests
 2015 Lumad massacre
 "Laglag/Tanim bala" scandal
 2016 Kidapawan protests
 Diwata-1 launching
 Commission on Elections data breach
 Close-Up Forever Summer concert tragedy

 International trips
 Manila hostage crisis
 Scarborough Shoal standoff
 Aman Futures & Rasuman Group pyramiding scam
Diplomatic  2013 Lahad Datu standoff
 2013 Guang Da Xing No. 28 incident
incidents/
 Philippines v. China arbitration case
International
 Death of Jennifer Laude
relations
 Pope Francis's visit to the Philippines
 Mary Jane Veloso case
 APEC Philippines 2015
 Bangladesh Bank heist

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 2013 in the Philippines

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 Presidency of Benigno Aquino III
 Corruption in the Philippines
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 Political scandals in the Philippines
  Politics of the Philippines

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Personnel management is an administrative function of an organization that exists to provide

the personnel needed for organizational activities and to manage the general employee-
employer relationship.
This is a function within an organisation concentrated on recruiting, managing and directing
people who work in it. Human Resource Management deals with issues related to
compensation, performance management, organisation development, safety, wellness, benefits,
employee motivation, training and others.

Personnel management can be defined as obtaining, using and maintaining a satisfied

workforce. It is a significant part of management concerned with employees at work and with
their relationship within the organization.

According to Flippo, “Personnel management is the planning, organizing, compensation,

integration and maintainance of people for the purpose of contributing to organizational,
individual and societal goals.”

According to Brech, “Personnel Management is that part which is primarily concerned with
human resource of organization.”

Nature of Personnel Management

1. Personnel management includes the function of employment, development and

compensation- These functions are performed primarily by the personnel management in
consultation with other departments.
2. Personnel management is an extension to general management. It is concerned with
promoting and stimulating competent work force to make their fullest contribution to the
concern.
3. Personnel management exist to advice and assist the line managers in personnel matters.
Therefore, personnel department is a staff department of an organization.
4. Personnel management lays emphasize on action rather than making lengthy schedules,
plans, work methods. The problems and grievances of people at work can be solved more
effectively through rationale personnel policies.
 5. It is based on human orientation. It tries to help the workers to develop their potential
fully to the concern.
6. It also motivates the employees through it’s effective incentive plans so that the
employees provide fullest co-operation.
7. Personnel management deals with human resources of a concern. In context to human
resources, it manages both individual as well as blue- collar workers.

Public Administration Theory is the amalgamation of history, organizational theory, social

theory, political theory and related studies focused on the meanings, structures and functions of
public service in all its forms.
Basic Concepts of Public Administration. Public administration can be broadly described as the
development, implementation and study of branches of government policy. It is the
management of affairs of the government at all levels --- national, state, local.

In relation to public administration, the function is a set of tasks set by law or by acts issued on
the basis of law, tasks that a person engaged in a public administration body has, and is legally
empowered to perform these functions of the public administration.
Classical organization theories (Taylor, 1947; Weber, 1947; Fayol, 1949) deal with the formal
organization and concepts to increase management efficiency. Taylor presented scientific
management concepts, Weber gave the bureaucratic approach, and Fayol developed the
administrative theory of the organization.
6 Elements of Public Administration
 Inter-governmental Relationships. The U.S. government has developed into
highly complex networks of organizational entities, with each entity typically
featuring a unique function. ...
 Organizational Theory. ...
 Public Needs. ...
 Governance. ...
 Public Policies. ...
 Social Change