Saturday, August 20, 2011

Keynes is Dead, Long Live Austerity

link here to article

This article attempts to argue that our current sovereign debt problems show that Keynesian economics is dead. There are limits to government borrowing to stimulate economies in recession that his theory does not address. This seems to be true for some countries, and not for others, but it has little bearing on Keynesian economics.
Keynes argued that countries should run surpluses in good times and use the surplus to stimulate economies in bad times. Politicians like to do two things to win elections. They like to provide benefits to those who vote, and they like to reduce taxes for those who fund election campaigns. High levels of sovereign debt is a function of the way that politics work in many countries. Its much more popular with the electorate to pay for government funded benefits by borrowing instead of paying for them with taxes.

There is a good link, at the end of this article, to a rebuttal that provides a better analysis of the debt crisis.

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