Can Keynesian Economics Save Us?
November 10th, 2008
JM Keynes was one of the 20th century’s most influential economists. He disputed the idea recessions are self-correcting. He made the argument it is quite possible for an economy to be in equilibrium with less than full employment, and high unemployment will depress demand, thus making an escape from recession difficult and slow. In his view, it is up to the Govt to stimulate demand by enacting public spending projects which would increase employment and by reducing tax to encourage spending.
Backing Keynes
• Keynes’ approach is most effective at times when inflationary pressures are not particularly high - like now.
• The laissez-faire approach has not been particularly successful lately, so why should we stick with it?
• Investment will be a godsend for infrastructure - and could even help solve our environmental crisis.
Against Keynes
• The market does a better job of working out which parts of the economy need to expand and contract…
“• Boosting the state could stunt the resurgence of the private sector once the downturn is over.
• When Japan tried to spend its way out of recession in the 1990s, the result was huge debt.
Source: The Independent (UK)
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