Keynesian Economics

I thank con for his last-minute rebuttals.First my opponent tells us that Einstein's theory always holds true. Wrong. Einstein knew it doesn't always hold true, so he called it a "general" theory. He also wrote a "special" theory for when the theory wasn't true [1]. Whatever form Keynes' long-run theory would have taken, I doubt it would contradict his short-run, but this is pure speculation so not worth debating about.Second, my opponent states Keynes should get the credit for the disastrous things that happened in 2008. Let me state right now that I'm not a fan of subprime loans either. Deficits to get an economy working are different to lending to somebody who won't pay it back. Since most of the money lended went straight into a house, the money didn't flow around the economy but was rather stuck in an asset. Keynes hated money being stuck in businesses, houses and land - the whole point of Keynes' theory was to keep aggregate demand afloat in a recession, and keep it steady otherwise. So if not Keynes' idea, whose idea was this? Well, how about some history? After Keynes' theory had been working for 20 years, there was 1% stagflation (inflation and unemployment - see my first source last round where it's charted). That's because policymakers kept using the Phillips curve too precisely, allowing people to predict what would happen to the economy accurately (again proving Keynes right), and act accordingly before the economy had even shifted. Rather than to tell people to not foolishly try and short-cut Keynes' model, policymakers turned in 1976 to Milton Friedman's Chicago school of economics and abandoned Keynes. The Chicago school was responsible for US policy up until late 2008 [2]. After people turned back to using Keynes' theories, while the economy did not immediately bounce back, the effects of the recession stopped worsening, and a second great depression was averted. Why should Keynes get the credit for a recession when policymakers were ignoring him for 30 years? (during which time, I should add, the business cycle had always been far more severe than it had, say, under Eisenhower or another Keynesian president!)Third, my opponent says there is no inflationary side-effect to Keynes' theory. Funny that he should say "it's so obvious! We don't need Phillips to tell us that!" when drawn on a curve, but when I explain it in words he disputes it. The funny thing is that if my opponent was correct, then Keynes' theory would be even better - there would be no downside to spending. Unfortunately, we don't live in my opponent's world. Realistically speaking, even Keynes knew there were two sides to the coin. If more people spend more money, there are more people bidding more money for the same goods. They therefore "bid up the price." This is a concept that goes back to Adam Smith, the founder of modern economics. It's called the problem of scarcity.Fourth, I agree saving is adverse to employment, effective demand, the multiplier effect and so on. There may be times, however (and Keynes agreed if you read his book) when too many people are employed, driving up prices as too many people bid for the same goods, making goods more scarce. The economy will have reached a short-run equilibrium with too much aggregate demand and not enough supply, so Keynes told us to slow down the rate of aggregate demand's growth by saving, to give supply a chance to catch up. In these circumstances, we want employment, effective demand, and the multiplier effect to decrease so there's no problem there. This is important: in the short run, the business cycle operates both above and below the full employment level. When above full employment, we should save to slow down our economy's growth.Fifth, that the graph wasn't proven. Actually, Phillips took the curve directly from 50 years of British government policy, as opposed to just his "theoretical" reading of Keynes (check my source from last round). Phillips also repeated the curve for many countries around the world, based on their real-world data, and got the same result, including the United States and his own country, New Zealand. The Japanese stimulus didn't work because they agreed with your country's Chicago school demands to float their currency, which is continuously screwing them over to this day. Again, Keynes cannot be blamed for this. I've already dealt with your American counter-example.Now back to rappin':Yoyoyoyo I'm da man you needAs economists aplenty have agreedIf you want your economy to run alongYou better have some dough to run it onIf you want it to slow down a bitDon't spend your money, just save itI ain't smokin' no grass, and I ain't no dumbEven Phillips could confirm my theorumYou can control employment, and inflationAs the business cycle goes through its many gyrationsAnd if you gots no cash, then it ain't cause of meMy theory, it works, oh so perfectlyI just proved it to Judge Judy in the studio beforeI proved it in America, after the world warIf you don't want to enter a unwholesome depressionOr escape from the '08 financial recessionWe don't want liquidity to be trapped(and by the way, mate, you are being out-rapped)We want money flowing, just like I saidIn the short run it works, in the long run we're deadThat's why I say you've lost this battle alreadyFor 20 years I held the economy steadyI invite you to join me, and sing a duetOtherwise prepare to face my strongest rhyme yet:[freestyle]My rhymes so potent that in this small bitI made all of the anti-Keynes lobbyists quit!Back to the rap, I get economies fitUnless they are governed by some idiotI hope con never lead da fedral reserveCause Americans should have what they deserveAn economy flowin' like the lyrics I sayThis was John Maynard Keynes, I wish you all a good day!Thanks Keynes. Sixth, my opponent asks how you can work the Keynesian multiplier out in dollar terms. Either he can ask Pelosi, or he can do any stage-1 university economics paper to find the answer, but I'll explain it quickly. The forumla is monetary injection divided by (1 minus the marginal propensity to consume). To get the marginal propensity to consume you work out what proportion of $1 a person spends [3]. Nobody doubts this formula, probably because Keynes was an accomplished mathmatician before he began trading stocks. His work on probability theory was inspiring.Finally, that governments run out of other people's money. First, by listening to Keynes and running surpluses, they don't have to use other people's money. Second, by borrowing, it's wrong to say they'll run out of borrowed money if they spend it, because spending encourages production, which makes a state able to repay their loans. Third, encouraging workers to spend money is far from the definition of socialism. I don't advocate blindly following the government. I advocate constraining the government to following Keynes' well-proven theory, rather than horde up wealth while the economy and people suffer.That's all the comebacks my opponent had. I don't think it's enough to topple Keynes' theory. My opponent began by saying he believes it's theoretically appealing. Now he says the practical side of things - so obvious we "didn't need" Phillips to prove it - is appealing too. In other words, he's conceeded the debate, from both a theoretical and practical standpoint.At the end of this debate, the question is simple: does Keynes' theory usually work? Phillips proved it practically. Keynes proved it principally. It's prudent. It was written by a cool rapper. John Q Taxpayer agrees. The question is simple: do you?Sources1 - http://www.bartleby.com...2 - http://en.wikipedia.org...3 - http://pages.towson.edu...