Pros And Cons Of Keynesian Economic Theory

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Keynesian economic theory is a failure

The Great Recession was brought about by reckless lending. The aftermath left the credit market in a tight squeeze and demand dropped. The economists led by the then FED Chairman Ben Bernanke embarked upon the easy monetary policy following the Keynesian theory.

The famous economic theory is named after the British economist John Maynard Keynes, who published it in his book, The General Theory of Employment, Interest and Money in 1936. The basic principle is to generate aggregate demand by a combination of fiscal and monetary policy.

The Central Banks led by the FED embarked on the journey to stimulate demand using the easy monetary policy route.

The FED and other developed nations dropped interest
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The money has been used by the corporations and the rich to inflate asset prices.

Since the failure of the current monetary easing programs, a few experts have reverted back to the American economist Milton Friedman’s idea of Helicopter money written in his paper, “The Optimum Quantity of Money”, in 1969.

Mr. Friedman wrote: “Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.”

The basic idea here is to directly provide the people with money, which they will be willing to spend rather than the current indirect method, which has failed to reach the common man.

This idea has found many supporters including former Federal Reserve chairman Ben Bernanke and the Financial Times' chief commentator Martin Wolf, both have supported this method.

However, the problem is that, once people start getting money, they will become used to it and it will be impossible to stop the drops. This will be detrimental to the whole
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