The Multiplier - the nub of this is that government spending is needed to push up aggregate demand in the economy so that everyone is fully employed. The classical idea that that the hidden hand of the market w
ill remove unemployment is what Keynes rejected and is his intellectual breakthrough. He is a key modern thinker in the same way that Einstein overturned Newton; Keynes overturned Smith. But the has been a 'neo-classicial' counter-rebellion against Keynes, re-asserting Adam Smith's doctrines. So you have cycles of fashion with this. The argument against the multiplier is that while government spending ('printing money') can increase employment in the short run it will reduce profitability (private companies can't compete with an ever expanding range of 'services' (ie government spending) that the government provides, so opportunities for profitable private investment decline.
Inflation also creates 'perverse incentives' (eg to immediately spend, rather than save). Inflation (put simply - rising prices) is wildly unpopular politically (especially with older people who vote is disproportionate numbers) and must be controlled mainly by increasing income taxes to choke back the excess demand in the economy. In this election these are the real issues, but they are a bit too complicated/boring/depressing to get over in a TV debate which is essentially all about how neat and fresh the leaders look. That's fair enough since they are all Keynesianists anyway - the Conservative stuff about smaller state/ larger civil society - low taxation and low government spending is essentially guff - since even under Mrs Thatcher (who used this rhetoric a lot) government spending went down as I recall from about 48 percent of all spending in the economy to something like 42 percent - so the difference was minimal. From memory US government spending is about 40 percent - the lowest of any large economy in the developed world - whereas most European counties (including UK) are around 45 percent to 50 percent - I think France is the highest with something like 51 percent. The only reason the US figure is relatively low is that (amazingly) they do not have a public NHS.
The Lib-Lab stuff about "caring" is largely guff too - the reason to create jobs like care assistants or give tax credits or whatever is just the correct technocratic solution to demand management in the economy. It is not a bad analogy to see the economy like the engine of a car, and government spending as the petrol. Its just nonsense that you say that you put petrol into an engine because of "fairness" to the engine, or that you relly, really care about the pistons or whatever. So despite the rhetoric "we are all Keynesianists now" and regardless of who wins the positivist technocrats in the treasury will get out their pocket calculators and calculate the correct level of public spending needed to manage aggregate demand - the different is that Labour technocrats will want to manage aggregate demand in a way that will minimise unemployment and maximise wages for relatively low earners (since the potentially unemployed and low earners are their constituency and paymasters - eg trade unions) and are less concerned about aggregate profitablity of companies; and the Conservatives will want to manage aggregate demand in a way that maximises profitability in companies, and are less worried about unemployment. But it only a matter of relatively slight degree.
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"We are all Keynesiansts now, and to depart from that essential model (as Von Hayek wanted) would lead to social disruption on a massive scale. The only place it has ever really been attempted was in Chile in the 1970s and the country fell apart. A version was tried in Poland - "shock thearpy" - in the 1990s and the social disruption was immense. But that was moving Poland from 100 percent government control to nearer the 'normal' level of about 50 percent.
I do not know who this person is - but he gives excellent lectures on Keynesian Macroeconomics. There's a whole series, but is is a good one on demand management and The Multiplier. By "AD" he means "aggregate demand" this means the total spending power in the whole economy (consumer spending+investment+government spending).
Very useful exposition on Economic policy in the Keynesian (not Austrian) model/framework.
SEE: http://www.youtube.com/watch?v=0CjNlyiDAno
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