John Maynard Keynes was a 20th century British economist who developed a theory about government policy in relation to private sector business. His macroeconomics approach was to use government-infused money in the private sector to spur job growth and economic output, thereby increasing a country's gross domestic product. His theory has been debated by economists and politicians for decades. Supposedly, any negative impact is outweighed by positive gains. But many have proven Keynes theory to be fundamentally flawed.
Keynesian economics theorizes that government injection of money into the economy will increase demand, therefore creating opportunity for suppliers to meet that demand. Austrian economics says that private citizens will create demand on their own, therefore providing opportunity for suppliers to "fill the gap", according to the naturally occurring needs. There is a major difference between the outcomes of the two theories, and that is that Keynesian economics causes massive booms and even larger busts, and Austrian economics achieves much more stable prices according to supply and demand.
Governments have been using Keynes theories almost exclusively for the last few decades. Politicians use Keynesian economics as an easy way of creating jobs, improving infrastructure, and spreading the wealth around (after all, the government is paying for these projects out of the taxpayers pockets). Politicians and Governments will provide jobs with promises of building new roads and infrastructure, even if the demand for them is non-existent. It's easy votes.
But the effects of these massive government projects only last so long, as once they are finished, the jobs that were "created", vanish. Non-existent "demand" was met, meaning that nothing useful has actually been produced, and the project was merely a waste of taxpayer money. The result of all of this is inflation, and lots of it. Inflation leads to higher unemployment, as well as less private investment, which leads to the government having a larger monopoly on the economy.
Keynesian economics was developed and first used during the Great Depression, and has been actively used since then.
Keynesian Economics is fundamentally, flawed.
Image Sources: Zerohedge
My Blog: Sailormann
Other Articles: