Question

Despite the fact that in many countries social-democracy and the welfare state has been largely replaced by a neo-liberal paradigm, it seems that Keynesianism continues to garner considerable debate within IPE literature. Critically analyse the term Keynesianism and provide a detailed discussion as to what degree (if any) it remains important in the 21st century?

Answer 1

• Neo -liberal paradigm suggests that there should be minimum role of government in economic activities. They believe that government must allow private system to operate economic activities.
• But Keynes does not subscribe to neo-liberal paradigm and believes that government must intervene in economic activities to avert major shocks and recession.
• Past historical role of government suggests that it must intervene in economic activities to achieve high growth rate. No economic system can work automatically without support of government. Government must play crucial role in averting the economic and social crisis. Extended role of government in dealing with social and economic issues provide it legitimacy.
• Private sector does not work efficiency and optimally during the economic crisis and recession. Hence, Keynesian system of economic thought is preferred over the neo-liberal paradigm.