What’s the answer in today’s crisis? Keynesian or Monetarism?

January 31, 2009 at 3:31 pm Leave a comment

A major discussion is which solution could be the right one for today’s crisis. Should the governmet increase its spending or should it just lower the taxes?

Dan Mitchell of the Cato Institute does an excellent job explaining why Keynesian fiscal strategies do not work in this video.

After watching the video I would agree to his arguments. But… the video does not address the central question of whether “Keynesianism” can be used during crisis periods, such as we have now in 2009. According to the video, government spending is always a negative influence.

Another solution would be the Monetarism which has more or less one proposal only – lowering taxes. Why would/could that work? It would put money in the hands of people (usually, that’s good!). But during a crisis, they could be afraid to spend, and nothing happens.

That’s why direct spending by the government could be a potential solution. Spending on roads, schools, research, which involves employing people, keeping factories open, and building what will be useful to free enterprise in the future.

Time will tell…

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Entry filed under: Life.

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