Why keynesianism doesnt work

This illustrates a challenge facing economists: should they advocate first best or second best policy? I once saw an exchange between a Bush treasury official and a prominent academic critic of TARP, etc. The official argued that the critics were putting forward "solutions" which had no hope of passing congress.

The critic sharply rejoindered that it wasn't his job to suggest stupid things that politicians were willing to do; it was to tell them the right thing to do. This is true—but at some level, there's no point in spending a lot of time designing policies which can't be enacted in any conceivable democratic polity. Especially if advocating those policies make it hard to advocate things that might work—either because the advocacy takes time away from thinking about feasible solutions, or because you alienate the people you are trying to influence.

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Much rather, I would like to bring my post to Mr. Policy makers may have secured a temporary reprieve from what would certainly have been more corporate defaults and job losses, but they simply delayed realization of losses on poor investment decisions by inducing liquidity driven speculation in financial securities. The title makes little sense. Keynesianism has been a key defence for capitalism. I suppose you could classify it as a failure if you are a socialist!

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Undefined cookies are those that are being analyzed and have not been classified into a category as yet. Skip to content. The tragic failure of Keynesian economics. Keynes in had one central idea in writing his General Theory , and that was to demonstrate that demand deficiency could cause recession and that therefore some kind of demand-side stimulus could and should be used to cure the problem of unemployment.

Thus, to the extent that macroeconomics is infused with notions of aggregate demand, it is Keynesian. Indeed, for plus percent of economists, so far as macroeconomic issues are concerned, that is all they know. They do not think in any other way, and if asked to do so, would not know how. This is the tragedy of modern macroeconomic theory and of economists in general.

Economists simply do not know any better. They automatically prescribe increased public spending during recessions because that is what they have been taught for something like four generations. An important part of the reason for the economic mess we are in is due to the failings of economic theory itself.

Aggregate demand is the conceptual contaminant that has permeated the subject, and no amount of policy failure appears capable of making a difference.

Neither the stagflation of the nor the lost decades of Japan since the s seem to have made the slightest dent. One can only hope that the looming macrofailures of the current series of stimulus packages now being applied across the world will help lift the fog of unknowing about the dangers that this Keynesian legacy has left behind. Until Keynes came along, economics was decidedly supply side.