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Jack Falvey's Investor Education Briefs: Get to know economists Keynes and Friedman

By JACK FALVEY
November 12. 2017 9:17PM




Known for his “command and control” economic theory, and regarded as the 20th century’s leading macro-economist, John Maynard Keynes gave governments reasons for interventionist policies to regulate the private wealth-creating sector.

There is no doubt that government interventions have economic consequences. But unfortunately — economics being an inexact science — unforeseen and unintended consequences seem to be the rule rather than the exception to massive monetary, regulatory, and taxation initiatives.

What this means to those trying to create and preserve wealth is that we all must adjust for minor and sometimes major rule changes in the middle of our daily efforts to reach our financial goals. Without getting into comparative economic theory, you should also understand the free market, noninterventionist, macroeconomic concepts of Milton Friedman. Both economic forces are powerful and can determine our actions as the business cycle fluctuates in response to these schools of thought.

The gravitational pull of the now global economy is not hard to understand. It is hard to predict what impact it will have on our individual plans and strategies. This is why risk aversion and diversification in asset allocation is a guiding principle of sound financial personal planning. There is so much that you cannot control that will control the growth of your net worth that understanding those forces is something you cannot leave entirely to others.

So for your own personal protection, make the acquaintance of the Keynes/Friedman dynamic duo. Both gentlemen have gone to their eternal rewards. Your temporal rewards are subject to the concepts they left behind. Learn as much as you can about their macroeconomic legacy. These are foundations of today’s rules of the game.

Jack Falvey is a frequent contributor to the Union Leader, Barron’s and The Wall Street Journal. He can be contacted at Jack@Falvey.org


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