What is the Keynesian Theory of Economics?
Simply put, Keynesian theory states that government can place capital more efficiently than the private sector. When government controls capital and directs its placement through taxation and heavy regulation or through deficit spending, then swings in economic cycles are flattened and full employment is brought into equilibrium for long periods of time. It further hypothesizes that high savings rates are unsafe and destabilize the economy and that only low savings rates and high rates of spending by the population can sustain growth and fuel stable economic cycles. Therefore, when the public is saving in large numbers, the government must encourage spending through regulation and if government cannot encourage spending then it should tax heavily in order to put the saved money to work in the economy. Why Keynesian Theory is Still a Theory Keynesian Theory is still a theory because it’s never been proven to work. While America embraced Keynesian Theory in the lat 70’s under Nixon and C
