Wednesday, July 15, 2009

Return of Keynesian Economics?

I was reading recently on the action the Fed and the Treasury are taking. What struck me was the similarities between the current recession and the Great Depression. There is a "great debate" on issue of, Is this the worst economic situation we have been is since the 30's? Well as we all know from US History class, the First 100 Days of the Roosevelt saw significant policy changes. Of which were Social Security, FDIC, WPA, etc. This era was the beginning of what many the call the Keynesian Era, which promotes government stimulus to boost demand in the domestic economy. This is what we are currently seeing in the Obama adminisstration. What people fail to realize is that these progressive policies did not fix the Great Depression, it was WWII, and unfortunately policies like TARP(Bush) and $787bn stimulus(Obama) will not either! Also, many of Keynesian's were based on a country with constrained capital flows and minimal free trade. Keynes funded his government deficit on printing money! Keep in mind the gold standard was still around and he did not concern himself with inflation with the degree that modern economies have to fight constantly. So will we see Keynesian Era II or will supply siders win this "great debate?"

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