In order to do all of this at a time when tax receipts are diminishing due to higher unemployment and reduced consumer spending requires mass government borrowing. In some cases borrowing on unprecedented scales.
Tax receipts are diminishing because the wealthiest individuals of the developed world have found loopholes, especially in the U.S., to avoid paying proportionally-fair taxes on their, and their companies', income.
2) The aim of every economy is steady growth but surely nothing can grow eternally so there must necessarily be economic shrinkage in the form of recession every so often. No?
Not necessarily. The current recession is the result of a couple of decades of fast-trading, high-turnover transactions which paid greatly to select individuals but have slowly eroded the economy by beefing up the price of goods faster than the goods themselves could appreciate in value. This, combined with poor business choices (made possible by a series of deregulation strategies) led to once-profitable businesses
and industries racking up losses as creditors came knocking (creditors, the debts to whom were created during the fast-trading, high-turnover transactions). Given that many third-world emerging industries are supported, or subsidized, by their governments, allowing them to sell at prices well below cost in order to flood first-world markets where prices are higher, the chances for first-world businesses to increase sales, thereby at least partially recuperating their losses, are shattered, and when they can no longer make interest payments, their debts are defaulted and they declare bankruptcy, go out of business, and leave many folk without jobs. Slow and continual economic growth is most-certainly possible. However, as the growth gets larger and larger, the lure for folk interested in taking advantage of the stability and growth through underhanded, get-rich-quick schemes increases, and if these people have enough power and clout, when the shit hits the fan for them, it can cause ripples throughout the system.
3) Is it genuinely and historically verified that Keynesian policies of the sort being undertaken can and will help alleviate the current problems?
The steps necessary, and regulations needed are not the ones you have described. What is needed are regulations on the ones who have made the mess. Slashing taxes on the poor may give them more money, but they will always spend it on the cheapest merchandise (see my reply to #2 for who that is), only bringing more trouble to first-world economies. Furthermore, fewer taxes only makes the already inept governments less capable of doing their jobs;
increasing taxes is the solution to underfunded governments, so long as those increases are on the proper parties (again, see reply to #2).
4) What will be the longer term effect of the massive levels of borrowing? Who exactly are we all borrowing from? When and to whom does this money have to be paid back?
Debts that, with the system functioning as it is now, will
never be repayable, at least not by those borrowing the money and if anyone else pays the money, they will make the borrowers pay in other ways.
As jar always says, the debt will be paid. If done right, we'll all be okay, if not, things will go very poorly.
Jon
"Can we say the chair on the cat, for example? Or the basket in the person? No, we can't..." - Harriet J. Ottenheimer
"Dim bulbs save on energy..." - jar
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