Has the keynesian economic model failed in recent

Has the keynesian economic model failed in recent

• 1.
  BY: OTOO FELIXKIZITO
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  Introduction It has oftenbeen a huge debate over the last few years as to whether the Keynesian economics of stimulus has failed in recent economic happenings. This is as a result of the failure of government spending to bring economic recovery. I’ve pondered to ask myself several questions as to why the recent increased spending by government are different from the ones envisaged by the Keynesian model.
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  A Keynesian–style stimulushappens when policy-makers deliberately seek to stimulate one or more of the components of aggregate demand to boost output, jobs and incomes during an economic recession. Keynesians tend to believe that an economy can get stuck at high levels of unemployment with national output persistently below its potential. So a Keynesian stimulus is designed to actively manage the level of and rate of growth of aggregate demand. This is done by injecting extra government investment into infrastructure projects and finance this through a higher level of government borrowing. Keynesian believe that the positive effect on national income and jobs would help to reduce the risk of a higher budget deficit ‘crowding out’ activity in the private sector.
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  A critical lookat the Euro zone crisis begs to differ, as countries which used Keynesian stimulus are still suffering. A closer look shows that Northern European countries which used austerity now have a sound economy. Now lets take Latvia and Greece as a case study:
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  LATVIA GREECE austerity stimulus 5.3% growth in 2012 18% fall in GDP 1.5% of budget deficit 9.4% budget deficit 2012
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  Latvia’s economy byofficial statistics grew by 5.5 percent in 2011, and in 2012 it probably expanded by 5.3 percent, the highest growth in Europe, with a budget deficit of only 1.5 percent of GDP. Meanwhile, Greece will suffer from at least seven meager years, having endured five years of recession already. So far, its GDP has fallen by 18 percent. In 2008 and 2009, the financial crisis actually looked far worse in Latvia than Greece, but then they chose opposite policies.
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  Latvia GDP growthrate 6 4 2 0 Latvia GDP growth rate 2007 2008 2009 2010 2011 2012 2013 -2 -4 -6 Grece GDP growth rate 1 0 -12007 2008 2009 2010 2011 2012 2013 -2 -3 Grrece GDP growth rate -4 -5 -6 -7 -8
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  To restore abroken economy, a successful stabilization program must appear financially sustainable so that it can restore confidence among creditors, businesses and people. Usually, a sound stabilization program can revive economic growth within 2 or 3 years, as Latvia did but Greece ignored. Latvia carried out a fiscal adjustment of 9.5% of GDP, 60% of the total needed, whiles Greece tried to stimulate its economy as Spain, Slovenia and Cyprus did. In a severe crisis, it is much easier to cut expenditure than to raise revenue.
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  Latvia budget deficitas % of GDP 12 10 8 6 Latvia budget deficit as % of GDP 4 2 0 2007 2008 2009 2010 2011 2012 2013 Greece budget deficit as % of GDP 18 16 14 12 10 8 Greece budget deficit as % of GDP 6 4 2 0 2007 2008 2009 2010 2011 2012 2013
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  Latvia decreased governmentexpenditure from a high of 44% of GDP to a moderate level of 36%. Greece by contrast maintained a high public expenditure of 50% of GDP in both 2010 and 2011. It finally cut it public spending to 40% to become financially sustainable in 2012. In 2012, Greece finally carried out a fiscal adjustment of 9% of GDP but that was too little and very late.
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  In the nutshell,the Keynesian economic model seems to have failed in recent years due the following:  first, big increases in spending and government deficits raise the prospects of future tax increases. Increased spending must be paid for sooner or later. Secondly, most government spending economic policies redistribute income from workers to the unemployed. This Keynesian model argue, increases the welfare of many hurt by recession but what it fails to address is the reduced productivity that follows a shift of resources towards redistribution and away from investment.
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  Дякую за увагу!!!!