Why do Keynesians prefer government spending over private spending?

It’s not because Keynesians are ideologically in favor of big government

Keynes
(Image credit: (Bettmann/CORBIS))

All spending directly lifts GDP by the same amount. So why do Keynesian economists argue that in a recession — when GDP growth remains low for a prolonged period, and when unemployment rises and stays high — that the government should increase spending? Why not instead try to get private individuals and businesses to increase activity to stimulate the economy?

Of course, governments do also attempt the latter. In a garden-variety recession, the central bank drops short-term interest rates in an attempt to encourage private investment (lower rates make it cheaper for businesses to borrow and invest). In the recession that followed the collapse of the financial industry in 2008, the Federal Reserve (with some moderate success) used unconventional monetary policies, such as asset purchases, to stimulate private-sector spending.

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John Aziz is the economics and business correspondent at TheWeek.com. He is also an associate editor at Pieria.co.uk. Previously his work has appeared on Business Insider, Zero Hedge, and Noahpinion.