• Home
  • Macro & Microeconomics
  • Consider the traditional arguments that are opposed to the application of discretionary fiscal policy,together with the Post Keynesian counterarguments. What are some of the socio-political forces thatmitigate against the use of budget deficits to sus

Consider the traditional arguments that are opposed to the application of discretionary fiscal policy,together with the Post Keynesian counterarguments. What are some of the socio-political forces thatmitigate against the use of budget deficits to sus Essay Example

Keynesian counter arguments 2

Keynesian counter arguments

Keynesian theory criticized the traditional theories of economics and majorly the law of Say. According to the law of Say, supply results into establishment of demand. Thus the negative impacts of the economy are not caused by demand that is insufficient and production output only (Galbraith, 2008, p.1) In every economy, there are socio-political forces that prevent the use of budget deficit. For example, there are those countries that have concentrated on establishing businesses and production facilities in regions that enjoy stable social and political stability. Moreover, countries that have unstable socio-political conditions often take economical measures by opting for political risk taking such as insurance covers. Another socio-political mitigation undertaken by economies against the use of budget deficit is geographical diversification
Furthermore, Keynesian theory contradicted the theory of Say which stated that in the aggregate there are the output costs that results from the sale proceeds of the demand side. However, Keynesian argued that this theory of Say is only viable if individual savings increase in the same manner the aggregate in the investments part does. In his theory Keynesian concentrated on developing a theory that would elaborate on the determinants of production, savings, investments and consumption.
Keynesian came up with new idea and argued that demands do not create supplies to the output of the full level of employment as the law of Say had pointed out. In addition, the Keynesian law concentrated on demand supply while the traditional economics had their focus on the supplies of economies.
. Thomas Robert Malthus argued that lack of expenditure which is aggregate in nature alongside overproduction leads to downturns in economy. However, the idea of demand that is effective was later abandoned by traditional economists after Keynesian’s counter arguments. (Galbraith, 2008, p.4). This is because the latter aspect assists in reducing the negative effects of risks associated with economies.

Reference
Galbraith, J. 2008. The fiscal facts: public and private debts and the future of the American. Retrieved from http://www.levyinstitute.org/pubs/pn_206.pdf