Monetarists always have one main point against Govt spending- They believe that deficit spending necessarily leads to interest rate hike, which crowds out pvt investment. Ans this eventually contracts the economy.
This is a very important point against keynesian economics because people quote several real world examples to support this view. But is this really true?
I don't think so. In theory this might sound convincing to a few. But the real question is what happens to the money that is borrowed. Quite obviously if the borrowed money does not enter the economy quickly and/or if the money is not channelized into productive activities, the real purpose of borrowing gets defeated. After all, per keynes, the deficit spending was to boost demand through efficient and productive spending. This increased spending was expected to restart the economy and have a positive effect on the growth, thus combating high interest rates.
But this does not always happen. Look at Greece. They were corrupt and naive. No actually I think they were simply corrupt.
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