When the recession hit back in December 2007, first President Bush then President Obama responded quickly with stimulus packages that included tax cuts and spending increases. Several economists such as Paul Krugman and Robert Reich backed this approach as they believed Keynesian policies would restore the insufficient demand and bring the economy back to full employment level. Yet, most Republicans and some other economists such as John Taylor and Russ Roberts disagreed with this approach and they claimed that more stimulus would create more uncertainty in the private sector and eventually lead to a debt crisis. (We have a similar debate currently with the Covid-19 stimulus programs)
What do you think?
Were the expansionary fiscal policies implemented since the beginning of the Great Recession the right policies or should the government have stayed out of the way and let the market clear itself?
Please watch the following video before you answer this question. Remember what you learned in this class when you make your interpretations. There is no right or wrong answers to these questions! Our policy makers and economists do not agree, so I do not expect you to agree on the economic policy either. We just want to apply what we have learned in this class.. Feel free to choose the Classical or the Keynesian view but explain your decision using your findings from the videos and other materials we used in this class.
(Hayek(Links to an external site.)is an advocate of the Classical model.)
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