Debate Rounds (4)
1. The Great Depression:
It is not uncommon that I hear that the Great Depression/New Deal was a success story for Keynesians. However, if you look at the data, something strange pops out. In 1938, the republicans got irritated with the large national debt (30%+ of the nation's GDP, higher than it had ever been in times of peace), and they put pressure on FDR to cut back his programs to save the nation's financial state. What do you think happened? Well, the economy went backwards proportionally to the amount cut. Yes, some could say that this shows that the fiscal stimulus was working. However, it shows me that the massive fiscal stimulus had no positive long term effects. They did not create any increase in AD (Aggregate Demand) past what was being put into the economy.
2. The Ricardo Effect
The Ricardo Effect shows that deficit spending reduces consumer confidence in times of prosperity. This is because people become frightened when they see a large national debt looming overhead. Thus, they are less likely to engage in risky financial activity that could potentially lead to dramatic increases in technology. Increase in technology is one of the best features of times of prosperity, and the short term solutions that Keynesian governments engage in during recession prevents this. Furthermore, even more than the abstract lack of consumer confidence during prosperity, the government is likely to raise taxes to pay off the debt, or more accurately the interest, accumulated as a result of the fiscal stimulus. Taxes lead to deadweight loss in the economy, and they are a tangible way to see how deficit spending during times of recession can lead to dampened prosperity.
3. AD(Aggregate Demand) and AS(Aggregate Supply)
Keynes placed a huge importance on AD. This is important; I am not even going to bother trying to argue against it. However, he placed little importance on AS. Both are important in an economy because, as Say's law states, "Aggregate Supply creates its own Aggregate Demand." By engaging in policies that will increase the Aggregate Supply of goods in the country, more people will be hired to produce the supply of goods. Therefore, these people will have additional income thus increasing the AD.
I will rest for now.
Sorry for misspelling Keynesian(I dropped the e and did not realize it.)
After Ronald Regan was elected president, the United States government began using supply side economics, a theory that suggests that when the supply of money is increased, particularly for those of higher incomes, then more money would be spent, thus stimulating the economy. In practice, this has been shown to be ineffective, as unemployment during times when supply side economics has been practiced has on average, been higher than during times when Keynesian Economics was practiced.
It is based on those factors that, I argue, Keynesian Economics is the superior economic model, and thus the one that should be used to determine a government's fiscal and monetary policy.
Secondly, in Germany post WWII, after the nation was destroyed, it underwent an economic "miracle". Did they use Keynesian Economics, no. In fact, they took away price controls, lowered taxes, and removed government interference in the economy. This put their economy back on the map in ten years.
Next, you stated that supply side economics taught that the supply of money increased, the economy would grow. However, this is just flat wrong. It teaches that boosting aggregate supply would grow the economy because it would increase production in the long term (Say's Law). Plus, Reagan's time period saw a Laffer Effect because they lowered taxes and it increased revenue from the top income class. Another advantage of supply side economics. Furthermore, during the Reagan administration, the supply of money actually shrank because chairman Volcker dramatically increased the inflation left over from the Carter administration (which, by the way, was run on a Keynesian system as well).
Source: The Price of Liberty
Furthermore, during administrations run by supply side policies, the unemployment rate steadily declined. It only went up during H.W. Bush's term because of a recession and federal reserve actions of Alan Greenspan. It went back down when Bernanke took over the Fed.
Secondly, my opponent stated that during Ronald Reagan's administration, there was a Laffer Effect due to Regan lowering the top tax rates, thus increasing revenue. Such a statement requires evidence, of which my opponent has not provided. Furthermore, my opponent has still disregarded the fact that during Regan's and H.W. Bush's administrations, the unemployment rate was still higher on average than it was during Bill Clinton's administration, during which time, Keynesian Economics was practiced.
Finally, there are some issues that need to be addressed. During the first half of Reagan's first two years in office, the unemployment rate rose to a high of 10.8 percent; source cited above. While the unemployment rate did fall by 1984, it was due to the fact that Ronald Regan increased spending by forty percent during his first term, and borrowed more money than previous presidents, increasing public debt at the time by 91 percent. Also, that time period was marked by a dramatic decrease in federal interest rates as a result of the stagflation crisis largely ending due to a number of factors.
Spending Under Regan:http://www.factcheck.org...
Federal Interest Rates:http://www.tradingeconomics.com...
2. The Marshall Plan was to aid other countries impacted by WWII. I do not see how that is relevant to the Keynesian debate.
3. Evidence for the Reagan Tax Cuts:
-Tax revenues increased.
-The fact that the debt increased is irrelevant as we were fighting a cold but potentially hot war.
4. My opponent addresses that during the first two years of Reagan's presidency, unemployment was high. This is because Volcker utilized monetary policy to dramatically increase interest rates to fight inflation.
"The Price of Liberty"
5. My opponent addressed that "The unemployment rate did fall by 1984, it was due to the fact that Reagan increased spending by forty percent during his first term." However, much of this spending was military spending and it is impossible to prove causality in this case.
6. If Keynes had his way, he would not have allowed free trade. This is directly against what modern economics says, and it is largely believed that the repealing of the Smoot-Hawley Tariff helped provide significant relief.
7. Bill Clinton was the most fiscally conservative president we have ever had. He instituted heavily contractionary policy and made America more business friendly. This is not Keynesian policy.
In conclusion, Keynesian Economics does not work, at least not as well as does Austrian and Monetary economics does. It has harsh side effects, provides few long term positive effects, and is not economically feasible for the long term. Furthermore, the points where a good economy correlated with Keynesian Policy are just that, correlation. I have not seen any evidence that supports causality. Furthermore, it is possible that the expansionary spending policies of Keynes were only possible BECAUSE of the good economies. In other words, the policies may not have actually caused the good economic times.
2. The sources in the article my opponent cited concerning the Reagan Tax Cuts were either unable to be found, vaguely cited, or self reported, self reporting being particularly important to note since it leaves any study subject to confirmation bias. Also, during one of his rebuttals, my opponent claimed that "The fact that the debt increased is irrelevant as we were fighting a cold but potentially hot war." yet in his opening argument, my opponent cited what is called the Ricardo Effect, which states that consumer confidence decreases during times of deficit spending due to concerns of a large national debt, which, according to him, prevent economic growth and development during times of recession.
3. My opponent has once again failed to cite a source for his claim of Chairman Paul Volcker dramatically raising interest rates to fight inflation.
4. My opponent makes another claim regarding the Smoot-Hawley Tarrif, saying that it's repeal provide significant relief. Again, no source is cited.
5. In his claims concerning Bill Clinton's economic policy, my opponent has tried to use Wikipedia as a source. Wikipedia is not a valid source since its content can easily be altered by anyone with an account.
Based on the evidence, it is clear that Keynesian Economics is an effective economic policy. Historical evidence shows that Keynesian economic policies produce the most growth, as was shown during the Great Depression, World War II, and afterwards until the Stagflation Crisis happened. Since that point in time, the United States government has largely used Supply-Side economics as their economic policy, which has not produced the kind of economic growth seen under Keynesian Economic policy, and shows little evidence of improving the current state of the United States economy. With that in mind, when all else is said and done, it is clear that Keynesian Economics is a good economic policy, and one that the United States government should continue to use as a guide for its own economic policy.
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