Keynesian Economics Leads to Big Failures

I would like to approach the question of if too big to fail still exists.

With financial institutions ever so tied in with the national economy, one must first ask how this happened. To accurately answer to big to fail, one must first understand the origin of these HUGE institutions. Their birth started with an idea long ago when Brit John Maynard Keynes stated that the private sector can commit mistakes that can throw off the nations economy, and that it is the duty of the public sector, specifically the government to re-infuse money and with that spending confidence to mitigate the ebs and flos of the economy.

This idea has been integrated into the “Too big to fail” mentality, and with that , the government has the right to exercise  various financial strategies to preserve these huge financial institutions. The problem is that economists really haven’t made any strides in their field, and really have no proof that this “generally accepted” school of economics works! Let’s evaluate this idea further. Basically, the government will infuse money and lower interest rates to encourage spending….but in reality that is a false sense of confidence. These interest rates are really just a false motivation to spend, when in reality the economy isn’t ideal for spending. It is important to ask if the Keynesians are the ones saving the economy, or are all of these false promotions to spend more really leading to the economic crashes. The sad thing is that there really isn’t a solid understanding if we are hurting or helping our economy. The economy is an organism, and the Austrian school of economics believes that natural crashes are vital to the survival of the economy, but we as americans choose to control this living being.

Ok, so first off, the economics are unclear. But, secondly, I think that this idea has been stretched to the point where these financial institutions will make profits off it. In changing interest rates and creating a false sense of spending confidence, these financial institutions undeniably will get more business, but they are operating on the precedent that the Keynesian economics is correct. Really, what this “too big to fail” is creating is taking a false idea, and making a principle out of it that they have the right to mess with the economy so that business will always “appear” steady. I believe that although the too big to fail still exists, that the 2008 crisis really put the magnifying glass on who really deserves what in this economy. I think that consumers and the American people deserve to know the true state of our economy, and save or spend accordingly. Encouraging spending in a time where a natural crash could revitalize an economy is a notion I cannot live with, not unless of course we have the economics to back it up.


4 comments on “Keynesian Economics Leads to Big Failures

  1. I think you’ve made some great points here and I totally agree that our business model is not the best. It’s really interesting to think that we’ve based our entire economic system upon the ideas of one man, without any real proof that his theory is correct. You would think that people would have questioned this system of doing business but instead we’ve all jumped on the bang wagon and gone along with what someone told us was true. I think as a society we really need to get better at questioning the information we are given and stop accepting things as truths without doing the research

  2. I love to see Austrian vs Keynesian throw downs.

    I can think of other Keynesian approaches that would have kept aggregate demand up. My memory is that Keynes emphasized keeping overall demand up. In this case, the government put money in at the top through the TARP and other attempts to buy toxic assets. The hope was it would somehow keep demand up.

    Maybe this seemed easier than sorting out the various CDOs (their mortgages).

    An alternative would be to provide mortgage relief to HOMEOWNERS who meet some conditions. Like, only those who primarily live in their home. Then, the toxic assets would be stabilized from below, foreclosures would have been lower, and the economic and social impact would have been less.

    Who would have lost money? Banks and other investors. But the overall economy would have not collapsed (or as much).

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