As someone with a finance degree and economics minor, I don't necessarily think Keynesians are "wrong" in the fact that stimulus spending may be able to temporarily grow an economy. It's really more of a moral issue. In order to "grow" the economy by this method, you are taking wealth from future generations which will result in a decrease in the economy when the **** hits the fan and taxes will skyrocket.
I do believe stimulus' can work (not necessarily at as big of an effect as many economists think...I think there are many variables affected that people don't realize), but I think it is flat out morally wrong. We should never have a debt level anywhere near this size.
Austrian Economists also agree that stimulus spending "grows" GDP. In fact, that's the basis of the Austrian Business Cycle Theory. The question is, however, is increased spending good in every instance?
When you artificially lower interest rates with new bank credit you will indeed see increasing amounts of business investment. However, contrary to a natural fall of the interest rate caused by increased private savings (increase in the supply of loanable funds) the increase in I is not complemented by a decrease in consumption. In fact, consumption would go up too, because the incentive to save is diminished at lower interest rates.
What that means is more money is now chasing the same amounts of resources. But since it takes time for prices to adjust, you don't see inflation immediately. Unemployment goes down, production goes up. Short term everything looks great. But we are in an unsustainable boom period.
Eventually prices will rise, since resources (capital and labor) are scarce. At some time the additional investments will result in consumption goods. Indebted firms rely on those sales. But consumers haven't increased their savings in the past (but did in fact the opposite) and can not afford to buy all the products supplied on the market, especially at higher prices due to inflation.
The monetary stimulus created a boom that is doomed to transform into a bust in the future. Price fixing the interest rate is only distorting the free market, creating a misallocation of resources. The tool of the market to reallocate those resources is called a recession.
Fiscal stimulus is flat-out misallocating resources without any complicated mechanisms. It too could create a boom, but that also doesn't mean increased long-term prosperity.
