Keynesian Theory

Critical Review
Name of Student
University
Critical Review
Keynesian economics focuses on state intervention. The interventions are sound only to a certain point. State interventions across different economies have had both a positive and negative effect. The collapse of the Asian tigers in the 1980s illustrates the fallacies the Keynesian theory affirms and which needs correction before implementation. Practically, the state needs to offer direction and leadership, through fiscal and monetary policy. However, Keynes opined that states had to have budget deficits during recessions, which affects the ability of private companies from accessing investment (Kates, 2016). Recession hurts businesses, which need finances to survive the turbulent conditions. Increased appetite for firms for finances, raises interest rates, which deny stressed industries from accessing funds at reasonable interest rates. Similarly, the situation rises competition between enterprises and the government for limited funds.
Keynes reverse causation implores that the market will always deviate to become equilibrium. The government will increase taxes to fund its expenditure or borrow from the economy. Increase in taxes will decrease savings among households and investments among businesses in the short run. Similarly, loans will lead to crowding out, squeezing businesses out of the bonds markets. However, the long-run adjustments will lead to full employment. Imperatively, Keynes failed to consider…