Yes, Keynesian policies work

Source: Lefty Cartoons













Several economists (or rather monetarists) are taking advantage of the present fiscal situation of the Greece and other countries to rubbish Keynesian demand theory.

Here is another article from another well known economist, Swaminathan Aiyar
Fiscal lessons from the eurozone

Many economists say fiscal deficits don’t matter: India has run fiscal deficits of up to 10% of GDP for three decades, yet has enjoyed record growth. Many are Keynesian enthusiasts, seeing government spending as the solution to any growth slowdown. These economists must think again after the fiscal crisis in the Eurozone.
Source: EconomicTimes
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Let me start my saying that I repeatedly mention in my posts- I am a Keynesian. That is the reason why I want to comment on Swaminathan’s article (and also respond to other economists).

About Greece
Some say this is the ideal example of how Keynesian theories could ruin an economy. I don’t think so. Greece is unique because it didn’t implement the policy properly. Ofcourse you can’t keep spending money blindly. There has to be accountability. Greece deliberately hid its fiscal facts from the market. Angela Merkel recently said-
“We’re right to tell the Greeks: you have to save money, you have to be candid and you have to work on your honesty, otherwise we can’t help you”
Source: Europe.getsomenews.com
So overall, it is not about keynes, but about greece and its dirty,corrupt politics

Keynesian in general
Now to a more broader point about whether Keynesian works. Yes, it does. But you need to have vigilance on where/how much you are spending. It natural. Even at home we keep an eye on our budgets and take loans in limits. Keynes never advocated borrowing from the market endlessly.Even excessive monetary expansion can destroy economies. I don't have to quote any examples here.

Another point is that Keynesian policies actually worked. It saved the world from the greatest depression ever (remember last year when most of the developed countries released bail-out packages).
If countries are continuosly running a deficit of ~10% then they should try to make structural changes in the economy. Something somewhere must not be right. After all, govt spending is expected to boost the overall demand in the economy. Where is all the money flowing?