Was Keynes Right With His Fiscal Policy?

Everybody knows that Keynes is the most effective economist of all times. You can see from the all kinds of economists ideas. Fiscal policy is an important factor which has made Keynes famous. With this idea, Keynes also advocates that governments should have interventionist manner (with increasing or decreasing taxes and create new jobs by government spending for unemployed population) to regulate the market when it’s in crisis.

 

But there is a simple issue that we should try to solve the problem within the theory. That is fiscal policy causes government budget deficit. Especially, the debts exist far more in developed countries which are the most powerful economies in the world (e.g. US, Japan, France etc.) (Richter, 2020). This, fiscal policy has become a trend post-ww2 world and after 2008 economic crisis. When you look at these events, fiscal policy has emerged like a saver the economy. I don’t say that fiscal policy is a completely ridiculous idea that only responsible for the economic failure, it has actually worked for Roosevelt’s ideas for ease US society from effects of 1929 economic crisis. He (Keynes) met with U.S. President Franklin D. Roosevelt in the 1930s and encouraged him to use federal resources to fight the Depression (although it is not at all clear what, if any, aspects of Roosevelt’s New Deal were consciously Keynesian) (Mann, 2019). As you can see from below, whether Roosvelt was affected by Keynes's ideas or not, as the size, scope and role of government changed drastically under Franklin D. Roosevelt and his New Deal, the US posted its biggest-ever peacetime debt increase (Phillips, 2012).

 

 

There is an idea that’s the reason for all of these cases. There was a strong Keynesian idea, other than government intervention. Many Keynesians are more concerned about combating unemployment than about conquering inflation. They have concluded from the evidence that the costs of low inflation are small (Blinder, 2021). Also, Roosevelt’s first idea was reducing the unemployment, so he spent borrowings to create jobs to set the economy on a track. 

Despite Keynesian ideas incredible role in post-war world economy, that is the fact (fiscal policy-monetary policy) which separates monetarist from Keynesians. There are lots of other thoughts which separate the approachments, but this is the most known difference between monetarists and Keynesians. Because monetarists are pretty much advocating that, every part of society work for it’s own convenience(especially mainstream Liberals). Because societies parts are related to each other, every part of society affect all of society in a good way, if there isn't any kind of participant except society itself. This idea is also the main opinion of Adam Smith, in his Invisible Hand Theory.

 

Consequently, was Keynes right with his fiscal policy? I mean, his ideas worked and western countries have benefited most. But the biggest ambiguity is that growing government deficit which is caused by Keynes’s ideas (I think). Some economists just say that it’s a balloon will be burst soon, some economists don’t evaluate like that. But, to be honest, I don’t think that our future will be fine.

 

 

References

Blinder, A. S. (2021, 03 13). Keynesian Economics. econlib: https://www.econlib.org/library/Enc1/KeynesianEconomics.html#abouttheauthor

Mann, G. (2019, 12 05). Keyne. Socialism’s Biggest Hero Is a Bourgeois British Capitalist: https://foreignpolicy.com/2019/12/05/keynes-keynesian-socialism-biggest-hero-bourgeois-british-capitalist/

Phillips, M. (2012, 11 14). The Long Story of U.S. Debt, From 1790 to 2011, in 1 Little Chart. thealtantic: https://www.theatlantic.com/business/archive/2012/11/the-long-story-of-us-debt-from-1790-to-2011-in-1-little-chart/265185/

Richter, F. (2020, 04 17). www.statista.com/. Statista: https://www.statista.com/chart/21409/government-debt-as-a-percentage-of-gdp-in-selected-countries/

 25/03/2021