Economics Essay Sample on Obamas Use of Keynes Economics to Run the U.S

2021-06-10 07:23:18
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Vanderbilt University
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In an attempt to understand the great depression during the 1930s, a British economist by the name John Meynard Keynes developed the Keynesian economics. He advocated for increased expenditures by the government and reduced taxes to stimulate demand and save the worlds economy from the depression. Also, the term Keynesian economics was used to refer to the idea that optimal economic performance could be attained by influencing collective demand through activist stabilization and economic policies by the government. Among the things he believed was this idea that, at a time when the government is struck by an economic turndown, it should run into a debt and spend more money. This he explained using a concept known as: a multiplier effect, that when the government spends, the money ends up in peoples hands and they use it to buy commodities and services, therefore, ensuring continuous economic activity. The more money circulates the economy grows.

However, Keynesian economics does one thing; it deprives the future generation the free life that people enjoy. As people enjoy and celebrate the growing economy, the future generation is wailing because the heavy expenditure and loans taken today will come with a demand to pay at their timeCITATION Joh08 \p 42 \l 1033 (Keynes 42). It can simply be termed as, sacrificing the future for our well-being today.

The U.S was in one of the worst financial crisis since the Great Depression when Barack Obama took over as the president. At this time, the total National Debt was around $10.6 trillion and since Obama was a strong Keynesian, he adopted the theory and by the time, he was leaving the office, the total debt had accumulated to around $19 trillion, which the then Presidential elect Donald Trump was going to inheritCITATION Joh12 \p 20 \l 1033 (Shannon 20). This was an average of $1.1 trillion yearly. With all this heavy borrowing, the economy actually grew tremendously due to the multiplier effectCITATION Joh12 \p 21 \l 1033 (Shannon 21). But then, the economy was growing on money it did not have, creating a lot of uncertainties about the future of the American people and the long-term sustainability of the economy.

Obamas use of Keynesian economics came with its pros and cons. Among the pros is the fact that, there was a significant economic growth during his rule. A short-term economic growth and not a long-term economic growthCITATION Joh12 \p 50 \l 1033 (Shannon 50). With a drastically reduced unemployment, he gets a thumbs up for reducing unemployment rates to below 4% by the time he left office and this has made it possible to combat issues of poverty due to reduced rates of unemploymentCITATION Joh12 \p 51 \l 1033 (Shannon 51). However, this worked as a temporary cover-up of the problem, lasting for as long as he was in office. This is because, more borrowing and more circulation of the dollar can only lead to inflation and eventually, a fall in the value of the dollar.

While President Obama believed in the theories propagated in the Keynesian economics, many scholars disapproved it alleging it to be outdated and did no good to the U.S economy. A closer look at this theory shows that, while it was meant to provide a solution to the great depression, Keynes had a wrong perspective on the cause of the Great Depression and therefore, the solution that was thought to be the savior of the global economy was just another scam altogetherCITATION Joh10 \p 39 \l 1033 (John Eatwell and Milgate 39). It was realized that the great depression was caused by a failure by the monetary policy of the government and not a failure of private market as Keynes had perceived and therefore, the application of the Keynesian economics as a way of improving an economy at peril becomes questionable.

Demand is the main area of focus in the Keynesian economics. While demand is inherent and constant, its only wise for an economy that wants to grow to focus on the supply of what is in need. Where supply is adequate, the economy grows so fast because there is a continuous flow of cash in the marketCITATION Joh08 \p 30 \l 1033 (Keynes 30). When demand is given the first priority, there is going to be goods will be stuck, hindering the continuous flow of cash which as a result leads to a slow growth of the economy.

While the concept is seemingly destructive to the economy over time, it as well can save the economy of a country a great deal in a short term. Had President Obama not considered it and implemented it, the United States of America would be in one historical economic depressionCITATION Joh12 \p 15 \l 1033 (Shannon 15). Whatever harm it posed to the future economy of the country, he had to use it as it was most definitely the only applicable method available then. No political leader would want to enter into power and watch things continue falling apart. Obama was no exception. Truth is, the Americans today are enjoying life on money that does not belong to them. The amount of debt owned by the country is so much that, the future generation of individuals will strain to pay it back without knowing where it came fromCITATION Joh12 \p 16 \l 1033 (Shannon 16). While that will be happening they will look at Obamas records of leadership and will remark of the many achievements he made economically and the incumbent president then will be going through a hard time trying to reconcile the economic status of the country.

Keynesian economics is criticized that, it was formulated to understand the Great Depression that took place in the 1930s. Today, many things have changed and advanced, including the trends in economic growth. Furthermore, the method is in itself rational such that it focuses on only one side of the problem. It focuses mainly on government expenditure and demand. Keynes original home, Britain, rejected this theory in 2010 when it had a huge debt to payCITATION Joh10 \p 20 \l 1033 (John Eatwell and Milgate 20). It has been attributed to the massive closure of industries in the United States when Obama was in power. This clearly shows that more advanced methods and theories that match the world today should be formulated to deal with the many cases of deep debts owned by countries.

The Keynesians believe that one can jump-start a weak economy through the government borrowing huge amounts of money and pumping it into the economyCITATION Joh08 \p 33 \l 1033 (Keynes 33). Obamas government did this. They cut taxes for some selected commodities and injected the borrowed money into the system. When there is a lot of money for a commodity, its price goes high, resulting in inflation. This is based on an assumption that, when the government borrows money, there is no opportunity cost when in reality, there are opportunity costs as resources are diverted from the productive sector of the economyCITATION Joh10 \p 72 \l 1033 (John Eatwell and Milgate 72). More often than not, when things seem not to go on well, the Keynesians will stand in defense with a question like, how worse would it have been had you not taken this action?

The Keynes economics are controversial and only shortly useful to a sinking economy. Otherwise, it does more harm than good to the future of such an economy. During Obamas tenure as the president, there were observable developments in the economy, regards to the Keynesians. However, it increased the countrys national debt that his successor will inherit an economy full of problems. He used the concept for his own good, he chose to focus on the short-term goals that he wanted to achieve while in office but not long term goals.

Works Cited

BIBLIOGRAPHY John Eatwell and Murray Milgate. The Fall and Rise of Keynesian Economics. London: Oxford University Press, 2010.

Keynes, John Maynard. General Theory Of Employment , Interest And Money. India: Atlantic Publishers and Distributors, 2008.

Shannon, John. Keynesian Economics, The Cancer in America. Bloomington: Authorhouse, 2012.



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