Keynesian Economic Theory was the core of FDR’s failed plan to improve the US economy in the 1930s.
Keynes argued that the solution to the Great Depression was to stimulate the economy (“inducement to invest”) through some combination of two approaches: a reduction in interest rates and government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment. —Wikipedia
Part of Keynesian theory is that economics is a zero-sum environment. Wealth can neither be created nor destroyed. It can be moved from one sector, private or public, as controlled by government. Sounds familiar doesn’t it? It is the core of the democrat political agenda.
It doesn’t work.
This theory was thoroughly debunked in the 1970s, partly due to the failure of LBJ’s Great Society and his War on Poverty. Billions of dollars were spent, wasted, for no positive benefit. What LBJ did create was an entitled welfare class of millions that has grown until it now is a significant portion of our population. I call them the Parasite Class. Generations of families have subsisted under this welfare state. Everything is provided and there is no incentive for them to raise themselves to be self sufficient.
Keynesian theory is a keystone of democratic economic policy because it demands statist control of the economy. According to the theory, since wealth cannot be created—it is a fixed state, wealth must be controlled by the government and redistributed to those areas as needed. Doesn’t that sound familiar? Redistribution of wealth…
Classical Economic Theory operates bunder Say’s law.
A central tenet of the classical view, known as Say’s law, states that “supply creates its own demand“. — Wikipedia.
Keynes rejected Say’s Law but that law has been proven to be valid, while Keynesian Theory has not. The economic recovery in the 1980 driven by Reagan after the disastrous Carter Administration is a prime example of Say’s Law. Say’s Law says that wealth can be created by cutting taxes, eliminating regulation that constrains growth. The theory says that supply and demand will drive economic grown by producing goods and services that are needed and desired. We have some prime examples of this in Microsoft and Google.
The two main differences between Keynesian and Classical theories is that Keynesian is driven top-down or statist control, and the Classical is driven from the bottom up and that statist control prevents growth and the creation of wealth.
Look at our economy from 2006 when the democrats gained control of Congress and that of the Reagan years of the 1980s when Reagan’s Tax-cuts drove the economy through the end of the century.
Obama, Reid and Pelosi versus Ronald Reagan. Which do you prefer? For me, Reagan proved that less tax, less regulation, less government means growth. Obama and the dems have proven that more taxes, more spending, more regulation, bigger government, bigger unions stifles growth, stifles liberty and produces nothing but waste. What a situation. FDR created the New Deal, LBJ created the Great Society and neither worked, did nothing to improve the economy and instead of reducing poverty, increased poverty and the the welfare state.
Chuck Asay has some thoughts on this.