Keynesians wrongly believe that government spending during recession (i.e. fiscal stimulus) will stimulate the economy to the extent that the money will put into motion the idle resources. There are still phenomena of creative destruction at work, regardless of the business cycle. Some industries naturally disappear due to a shift in consumer preference. Clearly, these obsolete industries were destined to disappear due to technological advances, even in the absence of recession. Government cannot distinguish between the obsolete industries and the slack industries which result from the recession. It will inevitably inject funds into industries that do not need it.
Uncertainty and Cost of the Keynesian Stimulus
Uncertainty and Cost of the Keynesian…
Uncertainty and Cost of the Keynesian Stimulus
Keynesians wrongly believe that government spending during recession (i.e. fiscal stimulus) will stimulate the economy to the extent that the money will put into motion the idle resources. There are still phenomena of creative destruction at work, regardless of the business cycle. Some industries naturally disappear due to a shift in consumer preference. Clearly, these obsolete industries were destined to disappear due to technological advances, even in the absence of recession. Government cannot distinguish between the obsolete industries and the slack industries which result from the recession. It will inevitably inject funds into industries that do not need it.