Keynesian Economics is often summarized as the principle that government should prop up economic interests even if it means government spending will result in a deficit. Paul Krugman outlined Keynesian theory as the following points:
" -Economies can and often do suffer from an overall lack of demand, which leads to involuntary unemployment
-The economy's automatic tendency to correct shortfalls in demand, if it exists at all, operates slowly and painfully.
-Government policies to increase demand, by contrast, can reduce unemployment quickly.
-Sometimes increasing the money supply won't be enough to persuade the private sector to spend more, and government spending must step into the breach." (Krugman xxvii)
While the theory has evolved, with Paul Krugman pointing out among other things in his introduction that "...Keynes believed, wrongly, that the conditions of the 1930s would persist indefinitely... he believed wrongly that the monetary environment of the 1930s would be the norm from then on" adding later "Keynes did not foresee a future of persistent inflation." (Krugman xxxii)
These faults aside, throughout the modern age Keynesianism has become an accepted theory in economics, with even the most noninterventionist politicians turning to Keynesian explanations for common problems. "A politician who promises that his tax cuts will create jobs by putting spending money in people's pockets," Krugman says, "is a Keynesian, even if he claims to abhor the doctrine. Even self-proclaimed supply-side economist, who claim to have refuted Keynes, fall back on unmistakably Keynesian stories to explain why the economy turned down in a given year." (Krugman xxvii)
The New Deal was Keynesianism's first test, and as was seen with unemployment's drop from 25% to 15%, the massive government oversight and spending of the New Deal was beginning to pull the nation from Depression. World War II is not as many think a separate phenomena that "really" brought the US out of Depression, it was rather a logical conclusion of the New Deal's Keynesian Policy, which was dwarfed by the level of spending seen in the war years.
" -Economies can and often do suffer from an overall lack of demand, which leads to involuntary unemployment
-The economy's automatic tendency to correct shortfalls in demand, if it exists at all, operates slowly and painfully.
-Government policies to increase demand, by contrast, can reduce unemployment quickly.
-Sometimes increasing the money supply won't be enough to persuade the private sector to spend more, and government spending must step into the breach." (Krugman xxvii)
While the theory has evolved, with Paul Krugman pointing out among other things in his introduction that "...Keynes believed, wrongly, that the conditions of the 1930s would persist indefinitely... he believed wrongly that the monetary environment of the 1930s would be the norm from then on" adding later "Keynes did not foresee a future of persistent inflation." (Krugman xxxii)
These faults aside, throughout the modern age Keynesianism has become an accepted theory in economics, with even the most noninterventionist politicians turning to Keynesian explanations for common problems. "A politician who promises that his tax cuts will create jobs by putting spending money in people's pockets," Krugman says, "is a Keynesian, even if he claims to abhor the doctrine. Even self-proclaimed supply-side economist, who claim to have refuted Keynes, fall back on unmistakably Keynesian stories to explain why the economy turned down in a given year." (Krugman xxvii)
The New Deal was Keynesianism's first test, and as was seen with unemployment's drop from 25% to 15%, the massive government oversight and spending of the New Deal was beginning to pull the nation from Depression. World War II is not as many think a separate phenomena that "really" brought the US out of Depression, it was rather a logical conclusion of the New Deal's Keynesian Policy, which was dwarfed by the level of spending seen in the war years.