No doubt, Keynes was one of the the greatest economists of the last century. Unfortunately though, his ideas for smoothing out the business cycle don’t seem to work very well.
Watch or listen to Daniel J. Mitchell, Senior Fellow at the Cato Institute, and Stephen J. Entin, President and Executive Director of the Institute for Research on the Economics of Taxation, discuss the failure of Keynesian economics at a Cato Institute Capitol Hill Briefing:
“President-elect Obama and other politicians are urging a massive expansion in government spending, ostensibly to help the economy recover. This Keynesian endeavor is supposed to boost growth by “priming the pump” by means of circulating extra money through the economy. Yet the notion that bigger government leads to more growth is theoretically suspect: any money that the government “injects” into the economy with new spending (or tax rebates) must first be borrowed and diverted from private use. The economic pie gets sliced differently, but it is not any bigger. The real-world evidence is similarly unfavorable to Keynesianism. Huge increases in government spending under both Hoover and Roosevelt did not help the economy during the 1930s, and more recent Keynesian initiatives—Gerald Ford’s rebates in the mid-1970s, Japan’s stimulus efforts in the 1990s, and President Bush’s rebates in 2001 and 2008—do not seem to have generated positive results.”