Keynesian economics is a theory that says the government should increase demand to boost growth. Keynesians believe consumer demand is the primary driving force in an economy. As a result, the theory supports the expansionary fiscal policy. Its main tools are government spending on infrastructure, unemployment benefits, and education.
The economist John Maynard Keynes was a liberal and developed this theory in the 1930s. The Great Depression had defied all prior attempts to end it. President Franklin D. Roosevelt used Keynesian economics to build his famous New Deal program. In his first 100 days in office, FDR increased the debt by $3 billion to create 15 new agencies and laws.For example, the Works Progress Administration put 8.5 million people to work.The Civil Works Administration created 4 million new construction jobs. His ideas were adopted by the Labour Party and to a large extent by the Conservatives until the 1980s. They formed party of the 'Post War Consensus' 1945- 79 when all the main political parties in the UK had similar economic policies.
Keynes described his premise in “The General Theory of Employment, Interest, and Money.” Published in February 1936, it was revolutionary. First, it argued that government spending was a critical factor driving aggregate demand. That meant an increase in spending would increase demand.
Keynes was a modern liberal who believed that government intervention in the economy was a necessary evil because free market capitalism could not ensure that recession were short lived. The effects of the Great Depression were most damaging to the lives of the poor and working people who suffered through no fault of their own, Keynes therefore supported policies to ensure their positive freedom from unemployment and poverty.
Second, Keynes argued that government spending was necessary to maintain full employment this dominated government economic policy until the Thatcher government challenged this view