I didn't say Keynesian would cause economy to collapse. I am just saying it does not achieve its goal of smoothing out boom and busts because it requires too much competence from the governors of the economy
Keynesian is saving money during booms and spending money during recessions. Yet during booms the money saved is too little and during recessions the money spent is too much. The debt will get bigger and eventually you either revert back to monetarism and pay down your debt or you default on it by not paying/printing money, the latter latter choice leading to hyperinflation, while the latter former choice means you're reverting back to Monetarism because no one is going to lend you money anymore.
But remember, the purpose of Keynesian approach was to smooth out booms and busts in the economy, yet what we're seeing is making them lasting longer and falling harder.
During a boom, I think the mentality of politicians goes something like "We have money to spend on buying votes but instead, we are saving it? Insanity!?"
When you're forced to spend lots of money for the sake of spending money, the money is likely to be inefficiently allocated, investing in stuff that leads to more spending (like $900 handouts to each citizen) rather than investing in stuff that increases production in the long run (like building a fast railway network between cities, which require years of planning).
Monetarists would balance the budget and make careful measured investments in the economy. Yes there will be boom and busts but even in recessions the economy is still fundamentally sound, and thus will be sure to recover. See Germany for example.
Don't blame Keynesian economics for the failings of the US politicians, specifically GW Bush.
Other developed countries (Canada[1], Australia[2]) followed Keynesian economics and had budget surpluses during period leading up to 2008.
The US, OTOH had expanding deficits. It is time people stopped blaming "the system", and assigned the blame where it should lay. It is the fault of one administration, and one administration only that the US economy is in the state that it is.
This isn't about progressive vs conservative politics either: Australia & the US both had conservative leaders in this time period, while Canada had a (center left) Liberal government. Only one country ran deficits.
I live in Australia and I know our government isn't in that much debt compared to all the other countries. But I saw how the government spent billions of dollars inefficiently (Basically a lot of fraud, involving subsidies to people upgrading insulation in their house). During the boom we saved $20 billion dollars but after the financial crisis the government is now at -$80 billion dollars.
Really? The best Keynesians in the world managed to save 20 billion during good times and needed to spend 100 billion to prop up the economy when times are bad? Oh and the government estimates we will spend another $200 billion before we start saving again.
I doubt they will be able to save $320 billion to get back to where we started, before the next recession.
How is that sustainable? We'll be fine for the next 10 years. But seriously... "Don't blame Keynesian economics for the failings of the politicians" is like saying "Don't blame Communism for the failings of the people".
I'm not blaming the system. Just need to vote for the party that is going to keep the budget balanced. The system works fine, I just voted for the wrong party last election.
If you read the wikipedia article you'll note that net debt is only $80 billion, not $320 billion.
It's sustainable because when the economy grows the debt becomes a lower proportion of the total budget which makes it simpler to pay off.
I don't think either Australian party is proposing a balanced budget. The (current, left wing) Labor party is getting criticized for trying to bring the budget back to surplus next year. It's unclear exactly what the oppositions proposed budget position would be, but it is likely they would follow similar policies.
"If you read the wikipedia article you'll note that net debt is only $80 billion, not $320 billion."
If you read my comment more thoroughly you'll note I said net debt is -$80 billion and that $300 billion is an estimate from 2009 (which wikipedia agrees).
"It's sustainable because when the economy grows the debt becomes a lower proportion of the total budget which makes it simpler to pay off."
No it's not. Yes it's a lower proportion, by what, one percentage point a year, or maybe even negative one depending on the interest on the bonds (growth - interest). I'll bet next recession they'll be at something like -$10 billion, the next one after that -$35 billion and it just rolls downhill from there.
"I don't think either Australian party is proposing a balanced budget."
You're right, maybe I'm too optimistic. The system is no good at all. I would really hope some day I will be able to participate in a direct democracy government.
"The (current, left wing) Labor party is getting criticised"
The government is getting criticised for everything it does. And?
Reply to earlier comment:
"The US, OTOH had expanding deficits. It is time people stopped blaming "the system", and assigned the blame where it should lay. It is the fault of one administration, and one administration only that the US economy is in the state that it is."
Keynesian is saving money during booms and spending money during recessions. Yet during booms the money saved is too little and during recessions the money spent is too much.
Too little or too much with respect to what?
you (...) pay down your debt by (...) printing money
There is a misunderstanding underlying this sentence which probably explains most of the hyperinflation-phobia that is going on. The truth of the matter is this: both physical money and treasuries (government debt) are liabilities of the government. There are only two differences between them: (a) coupon (interest payment) and (b) maturity.
Paying back the debt by "printing money" is just exchanging one maturity for a different one. There is nothing inflationary or defaulting about that. Heck, the US government could just stop issuing bonds with long maturities altogether and it wouldn't change a thing (except for altering the maturity/interest structure of the financial assets held by the private sector). All this debt you're seeing is money that has already been spent.
But remember, the purpose of Keynesian approach was to smooth out booms and busts in the economy, yet what we're seeing is making them lasting longer and falling harder.
This may be your personal impression, but if you look objectively at the actual data, you'll see that it is incorrect. Whether it can be attributed to Keynes or not, both the frequency and the magnitude of recessions have been much lower since WWII than before. Just before the GFC, some economists even had the hubris to proclaim the business cycle dead.
Keynesian is saving money during booms and spending money during recessions. Yet during booms the money saved is too little and during recessions the money spent is too much. The debt will get bigger and eventually you either revert back to monetarism and pay down your debt or you default on it by not paying/printing money, the latter latter choice leading to hyperinflation, while the latter former choice means you're reverting back to Monetarism because no one is going to lend you money anymore.
But remember, the purpose of Keynesian approach was to smooth out booms and busts in the economy, yet what we're seeing is making them lasting longer and falling harder.
During a boom, I think the mentality of politicians goes something like "We have money to spend on buying votes but instead, we are saving it? Insanity!?"
When you're forced to spend lots of money for the sake of spending money, the money is likely to be inefficiently allocated, investing in stuff that leads to more spending (like $900 handouts to each citizen) rather than investing in stuff that increases production in the long run (like building a fast railway network between cities, which require years of planning).
Monetarists would balance the budget and make careful measured investments in the economy. Yes there will be boom and busts but even in recessions the economy is still fundamentally sound, and thus will be sure to recover. See Germany for example.