Keynesian Economics

Last Updated Apr 16, 2009 5:37 PM EDT

Will the stimulus save us?

Ever since President Obama signed the gargantuan stimulus bill into law, that's been the $787 billion question. The answer? Sure, it could help, but a big check alone cannot rescue the economy.

The stimulus plan's biggest supporters (with some reservations) are Keynesian economists, so called because they subscribe to ideas developed by economist John Maynard Keynes, who argued that in an economic downturn the government can stimulate demand by, in effect, paying people to dig holes in the ground and then fill them back up. Other experts oppose the plan on the grounds that government spending is either ineffective or will have negative consequences down the road (or both).

While economists differ on the likely effectiveness of the stimulus package, they tend to agree that the economy can recover only when the financial system regains its health — hence the $2.5 trillion bank rescue package announced in February.

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