Keynesianism has been subject to much debate over the years. To what extent is the idea that demand management in a period of economic stagnation a recipe for stimulating economic growth once again? The standard argument is that in times of recession when unemployment is high and rising, government should step in, cut taxes and boost its own spending to kick-start the economy and get it moving. It is often noted that the US President Franklin D.
Roosevelt’s administration was one of the first governments to try to boost aggregate demand via the New Deal.
However, as economic historian, Brian Domitrovic, argues, the policy did not bring down unemployment significantly even after six years of the policy.. 

Instead, Domitrovic argues that it was the Second World War that really laid to rest the spectre of the Great Depression. Similarly, he notes that post-war recessions in the United States were partly solved by wars in Korea and Vietnam. The reason is that governments can spend very large sums of money on military hardware, which generates jobs and boosts aggregate demand. Is going to war the ultimate weapon of Keynesian demand management to solve problems of sluggish economic growth and unemployment? Domitrovic argues that government spending on war can be viewed as ‘a jobs programme’ and refers to this as a ‘Keynesian injustice’.
Other Keynesian injustices which Domitrovic argues exist include government spending programmes on welfare programmes, housing, and social and health policies, all of which fail and leave an ‘underclass’ in society which government can claim are the architects of their own problems given the financial stimulus the government has provided.
‘Our problems would not exist if you did not throw up insuperable problems to your own success’, chides Domitrovic.
Keynesian injustice number three is the emphasis on aggregates which Domitrovic argues masks the credit which should be given to entrepreneurs who succeed in business. Domitrovic cites Jean Baptiste Say’s definition of entrepreneurs as ‘those people who see what people need before they themselves do, and get to work providing it’. Keynesian demand management with its emphasis on ‘aggregates’ does not sufficiently recognize the importance of the free market and individual incentives in generating economic growth. Domitrovic notes:
The great art critic Hilton Kramer once said of Picasso, some years after his death, that he was ‘the artist we will have studied and lived with – and argued about and, at times, even been a little sickened by’. So may it be said of Keynes and his movement that still dogs us as we try to overcome the government soaked economic sluggishness of the twenty first century.
Critical Thinking Questions
1 Domitrovic suggests that the New Deal did not solve the problem of unemployment in the pre-war United States and that it was war that created jobs. What evidence is there to support this view?
2 Critique the argument that a cut in taxes and an increase in government spending can help kick-start the economy in a period of stagnant economic growth.
3 Do you agree that spending on welfare programmes is not an efficient way of attempting to boost aggregate demand and economic growth?
4 Are Keynesianism and entrepreneurship incompatible? Explain.
5 Critically evaluate the view by Domitrovic on Keynesianism and his quote that the ‘movement still dogs us…’.