Efficacy Of Keynesian Policy Debt Models

Efficacy of Keynesian Policy, Militarism, and Debt

Keynesian Models, Keynes Policies, Keynes Debt

Are Keynesian economics effective? Keynes's General Theory was not published until 1936. By then, the Great Depression was on its sixth year of duration and continued to drag on until the 1940s when World War II broke out. Fortunately for the economy, as war broke out, governments increased spending on armaments, general industrial production picked up, and unemployment gradually went away (started at 20% in 1939) to the point where labor shortages began to occur. Many economists believed that this wartime experience proved Keynes's ideas. Equilibrium and public confidence was finally restored (not automatically by the forces of supply and demand) when the government stepped in and wisely used their powers to tax, borrow, and spend money. Resultant to this confirming experience, by 1945 most politicians jumped on the Keynesian bandwagon and endorsed new law, including the Employment Act in 1946, requiring the government to use taxing, borrowing, and spending powers to maintain full employment in the future.

Although there has not been another major depression since the Great Depression of the 1930s, belief in Keynesian economics has not been fully supported and adhered to, nor has the efficacy of Keynesian policy been proven. Since the end of World War II, for example, many recessions have still occurred (1948-49, 1953-54, 1957-58, 1960-61 with the Vietnam War helping pull out of that one, 1969-71, 1973-early 1980s (e.g. Reagan deficit spending especially for national defense helped pull out of that one), 1990-91 (the Iraq War pull out of that), and 2002. On the other hand, with all the government interventions that frequently took place (consisting primarily of increased defense spending) resulting in economy recovery from recession, it could be very well said that Keynesian economics have worked as an effective means to help the economy be restored to equilibrium more quickly. In practice, however, there are two major problems with Keynesian policy: (1) it has largely resulted in deficit spending and huge debt accumulations that could have severe future repercussions in terms of future economic growth potentials, and (2) it also has commonly resulted in the establishment of a warfare or military economy.