Keynesian economic theory and its impact on modern fiscal policy

The economic theories of John Maynard Keynes, established in his 1936 work ‘The General Theory of Employment, Interest and Money’, continue to serve as a foundation for modern mixed economies and state market interventions. Keynesian theory advocates for countercyclical policies: during recessions, the state should stimulate the economy through public spending on infrastructure, employment, and social benefits, even if it results in budget deficits and increased debt.

To balance this, the theory suggests that during periods of economic prosperity, governments should reduce spending, decrease redistribution, and potentially increase taxes to create budget surpluses. These surpluses are intended to reduce national debt, ensuring the state can borrow more affordably when economic downturns return. Czech economist Tomáš Sedláček notes that this concept of saving during abundance to survive scarcity is reflected in the biblical story of Joseph advising the Pharaoh.