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2010-06-15

Keynesian not dead but require discretion

Comments on Michael Stutchbury “Crisis puts nails back in Keynesian coffin”, 15/06/2010, http://www.theaustralian.com.au/business/opinion/crisis-puts-nails-back-in-keynesian-coffin/story-e6frg9p6-1225879617867
Frequent interventions by governments in terms of fine tuning the economy in the tradition of Keynesian may not be desirable, given government's ability and capability to get things right, as well as political problems and constraints.

That, however, does not mean Keynesian should be completely abandoned altogether and never be used, such as the case in the wake of the GFC where there was a clear case that prudent government interventions can outweigh the costs of those actions.

It seems that Keynesian should be used for two main purposes. Firstly, it should be used in an emergence or a crisis where market would take too long to correct itself and restore broadly appropriate macroeconomic settings.

Secondly, it may be used for purposes of media and longer term structural adjustment, as opposed to deliberate counter cyclic fiscal policy beyond its autonomous stabilising effects.

If a government has the ability to fine tuning, then it could also conduct counter cyclic fiscal policy, but it is generally much harder and requires much higher policy design and implementation capacity by the government and the bureaucracy working perfectly in close cooperation.

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