Originally Posted by boy.on.laptop
To suggest the United States follows a Keynesian model is absoutely ridiculous, the States is far closer to the Austrian school economics then Keynesian. The United States would be in a waaay better state today if it had followed Keynesian model as well as a huge reduction in poverty. New Zealand my home country has half the percentage of poverty as the United States despite having half the GDP(per captia) and following a mixed economic policy of Keynesian and Austrian school.
I strongly disagree, the United States does NOT follow the Austrian school of economics, though it is very similar in that it tries to approach economics from a scientific point of view. The United States follows a mixed Keynesian-Monetarist (coupled with supply-side) form of economics, it does not follow the Austrian school. Essentially, it follows the basic idea that when we enter a recession, the government pumps money into the economy, and when a recession is over, the government cuts back spending; that basic premise follows the Keynesian model quite accurately (the recent government bail-outs being most poignant). Further, the United States also follows the neo-liberal economic theory of monetarism from Hayek and Friedman with the idea that the Federal Reserve is most important and that interest rates and money supply must be controlled over unemployment. The only strong difference between Keynesians and Monetarists is where equilibrium lies, and the way in which a country can achieve it.
In the United States, it is a balance between those two systems, but not the Austrian school of economics; a Ron Paul would call for the Austrian school, however, Bernanke and Greenspan are strict Keynesian-Monetarists. The United States is not remotely a laissez-faire system, and has been following a mixed system of Keynesian economics since the 1970s (even the problematic “Reaganomics” followed the basic Keynesian model); Nixon even went as far to say, "We are all Keynesians now."
Indeed, the United States is anything but strict Keynesian, and has been less Keynesian since the stagflation of the early 1980s (an issue of which the Keynesian model was unable to understand or fix), there can be no objection to that, but, on balance, it still follows the basic premise of the Keynesian model; the major detour from Keynes being the monetarist view towards the Federal Reserve.
Today, though the Keynesian model has lost power in the United States, it is still ever prevalent, and it has begun to gain even more influence within the United States economy since the on-set of our current economic downturn. That said, please be clear, my assertion that the United States follows a Keynesian model is not ridiculous, as it(United States) may not follow the model as strictly as it did in 1960, but it still holds Keynes’ basic principles.
I also disagree that the United States would have been better under the strict Keynesian model, as that is a clear sign to me that you do not understand the crisis of the late 1960s and 1970s. The United States was in a very strict Keynesian system during these decades, but fell into two deep recessions due to the “expansionary policies” that the Keynesians called for. Essentially, due to the Keynesian model, by the early 1980s both the United States and United Kingdom were left in deep recessions, high unemployment, and above all, large government deficits. Indeed, it was not the Keynesian model that particularly made them occur, it was simply that it was an inept system in addressing the issues in the economy (as it is essentially deficit spending, while not addressing how the funds will be dealt with in the interim ), and most of all, ran up the deficit (thus we see issues of inflation). The Keynesian model was unable to deal with the economic problems of both of these economies, and created a once thought to be impossible condition known a stagflation.
Today, a “beaming” example of strict Keynesianism is Japan, with a government that has been unable to stimulate an economy for close to fifteen years now. Japan gained many a public service and much infrastructure for the whirlwind of a decade and a half long recession. The Keynesian model may make good points to be sure, but I must restate, it has failed time and time again to address the issues that deficit spending creates
"We have been living on borrowed time…we used to think that you could spend your way out of recession and increase employment by cutting taxes and boosting government spending. I tell you in all candor that the option no longer exists…” -James Callaghan, former Labor Prime Minister, 1967