Editor, The Record:
Re: Keynesian had worked for decades, Dec. 6 edition.
Keynesian economics would work today, if it were properly applied in a timely manner.
John Maynard Keynes developed an economic theory during the height of the Great Depression era from 1929-1933. The theory was an aid to help govern and smooth out the bumps in the economy during boom and bust cycles in a free market society. In its simplest form, the Keynesian theory has two parts.
First, in a bust cycle, recession or depression, Keynes opined that governments should lower taxes and lower interest rates. Then government should increase public spending for social programs and borrow if necessary. These actions would ease the burden on taxpayers as well as borrowing money during the depression to be paid back in the future boom times. Second, in a boom cycle, bull market or good times, Keynes theory states that government should do the opposite. Increase taxes, increase interest rates and cut or lower public spending for social programs. Now government and borrowers must pay back the borrowed monies used to get through the recession.
When I was in university, I learned that Keynesian economics has nothing to do with austerity and everything to do with balance. When you lend money to someone, do you expect to be repaid? If yes, then it is a loan. If no, then it is a gift. When our governments borrow money from another country, bank or by issuing Canada Savings Bonds, do the lenders or bondholders expect repayment with interest? You bet!
In order for Keynesian economics to work you must use the whole theory. As an example, our former Finance Minister, Mr. Paul Martin chose to use all of Keynes theory, thereby doing all Canadians a favour by cutting public spending in good times to repay our debts. It was tough at the time, but can you imagine how much tougher it would be today? Can you imagine how much higher our debt and interest payments would be if that debt had not been paid down? Our current government is just starting to use the entire Keynes theory again.
When we choose to live within our means, pay down our debt and adjust our expectations to a more realistic level we do what is right for future generations. Our generation should pick up the tab for our choices and actions which will allow us to say “I want a better future my children.”