Keynesian Economics as an energy drink
Güncelleme tarihi: 27 Ara 2020
In this article, we will cover Keynesian economics on a metaphor of "Energy drink." When you drink energy drink while you are tired, you will feel much stronger and more energetic, but when the effect is over, you will be much worn out than you originally were. This means it is not an advantageous nor preferable way in the long-term. Before criticizing Keynesian Economics, I will summarize what Keynesian economics basically is and its main points.
British economist John Maynard Keynes began a revolution in economic thinking that overturned the then-prevailing thought that free markets would automatically provide full employment, which means that everybody who wanted employment would have one as long as workers were flexible in their wage demands. The most plank of Keynes's theory, which has come in touch with his name, is that the assertion that aggregate demand—measured because the sum of paying by households, businesses, and therefore the government—is the foremost important propulsion in an economy.
Keynes further claimed that free markets have not any self-balancing mechanisms that cause the financial condition. Keynesian economists justify government intervention-Which is not good at all-through public policies that aim to attain financial condition and price stability. We can see directly that it is a very contradictory view with the Austrian school. Basically, Keynesian economics involves Government intervention to manage the money supply, such as expansionary fiscal policy, tax cuts, and budget increases. The point is that governments will accelerate economic growth. (Jahan et al., 2014)
Nevertheless, how and why is it not advantageous nor preferable?
Borrowing induces higher interest rates and financial crowding out. For the government to borrow more, the interest rate rises. Moreover, these rates will eventually discourage investment by the private sector, which will slow down the economic growth in the long-term. Depletion of resources is another problem here. Because If the government borrows to fund higher investment by borrowing from the private sector-which is imposed by Keynesian economics- the private sector has fewer resources to support private sector investment.
These all remind me of Irresponsible people who do not really care about lifestyle; all that matters is if they have enough fun. Furthermore, if there is not enough fun, you need to "stimulate it" with alcohol. However, every party must end and the morning after is always hard -hangover, empty wallets, and shame. Nonetheless, to overcome these negative feelings, more alcohol is needed, so it becomes a circular activity. And, this is why we use the metaphor of "energy drink.". Another thing that makes Keynesian economics unfavorable is the issue of encouraging big government. Governments boost investment in a recession, but fiscal spending contributes to high taxes and spending regimes following a recession. "Nothing was so permanent as a temporary government program," Milton Friedman joked. Government funding programs can be planned for the short-term, but mighty political interest authorities have formed that lobby the government to hang on to them once it started.
Another problem is, In brief, it attributes unemployment to a lack of aggregate demand and suggests that if the government increases demand, either by printing money and procurement or employing people to dig ditches and then replenish them, or having people to invest instead of saving, the economy will rebound, which is a quick and dirty way to solve the problem and fundamentally wrong. Moreover, empirically, it is wrong because unemployment can persist despite government attempts at a Keynesian stimulus.
An added obstacle in Keynesian economics in the long-term is Ricardian Equivalence itself. This is a claim that if the government pursues expansionary fiscal policies, such as lowering borrowing-funded taxes, then individuals will not spend the tax cut, because they expect taxes will have to increase in the future to pay down the debt, so expansionary fiscal policy has little or almost no impact.