Keynesianism - pros and cons

07-13  Source: Network gathering  Views:1 

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Keynesianism - pros and cons

The state must provide the framework of the economy.

In 1936, the Englishman John Maynard Keynes an epoch-making work. translated German it is entitled: "The General Theory of Employment, Interest and Money".

Keynesianism took over from state neutrality

  • Keynes recognized that the existing to the Great Depression of 1929 mindset of "laissez-faire approach" no basis for an economic order could be more. Until then, the belief was that the forces of the economy were in an automatic harmony and everything will fix itself.
  • Contrary to the assumption of the founded by Adam Smith classical economics is just no automatic tendency to full employment in the economy. Rather, the state should take action to identify ways that could ensure full employment.
  • By Keynesianism awareness was sharpened that economic self-control of a constant monitoring by an active economic policy needs. Only so mistakes can be combated. The benefits consisted in the fact that had a turnaround of the fundamental rejection of state intervention to its fundamental affirmation.

Advantages and disadvantages lead to conflicting objectives

  • But that arise at the same time the disadvantages. The possibilities of the state to influence market-based processes are set a priori limits. First, the knowledge of economic facts and knowledge about the relationships with politicians are rather modest.
  • Also, an economic grievance can not be corrected without causing another undesirable situation often. There are trade-offs. Furthermore, it is uncertain to what extent, important economic policy measures in the process of policy formulation enforce the right amount at the right time at all.

The reality also destroyed this illusion

  • Due to the economic success in the sixties in USA and Germany an exuberant optimism of many, inspired by the Keynesian economists is made wide, who believed that they could use government measures largely solve economic problems.
  • Due to the growing inflation of the seventies and the occurrence of inflation and high unemployment gave way to optimism a growing skepticism about the diversity of what seemed economically feasible.

In conclusion it can be stated separately, are seen that the advantages and disadvantages of Keynesianism is not the answer. In any case, it has been shown that economy can not function without state control. The question remains just when and how far the state should intervene and intervene must. For example, the collective sovereignty of the unions and employers' organizations is taboo for the state, it is at best the legal framework.

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