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Wednesday, 22 April 2009

The fallacy of Keynesian theory explained


This video talks about government spending, stimulus packages and why they don't work.


5 comments:

Steve Baron said...

Here's an interesting article to add to the discussion by Fred Argy about "Why targeted government spending and tax concessions are preferable to outright tax cuts".
http://clubtroppo.com.au/2009/02/01/why-targeted-government-spending-and-tax-concessions-are-preferable-to-outright-tax-cuts/

Wilsta said...

Interesting video .. very biased though! America borrows from Japan and China (sells them US govt bonds) .. something that circular graph doesnt take into account. The US therefore boosts its own economy not by taking money from its own left pocket. The video doesnt offer another solution i.e. an alternative to Keynesian theory. Furthermore they say how it had no effect.. thats not true. It would have been MUCH worse without it. If only we had the Great Depression with and without Keynesian theory for a true comparison!

Steve Baron said...

Individuals can't borrow themselves out of trouble so I don't see why governments can?

Wilsta said...

The real benefit isnt the spending itself but rather the perception it creates. If people have confidence that the government is taking action then (hopefully) it will improve consumer sentiment. Once people feel its okay to spend again and business to invest again, the government can step back. Arguably the government could lose more tax revenue from a collapsing economy than the interest expense it will incur on raising capital and spending it.

Steve Baron said...

While I can't argue with Wilsta's comment about public perception there is still a price to pay somewhere down the track. Here is a link with more on this topic being debated in the USA. The same applies to NZ even though our debt compared to GDP isn't as big as some countries.
link text