Originally Posted by
jungle
I think the critics of an activist fiscal policy are forgetting the essential role of monetary policy as it relates to fiscal policy. As Keynes was very clear about, the whole point of fiscal stimulus is to mobilize monetary policy and inject liquidity into the economy. This is necessary when nominal interest rates get very low, as they are now, because Fed policy becomes impotent. Keynes called this a liquidity trap, and I think there is strong evidence that we are in one right now.
This is presupposing a Keynesian cause and a Keynesian solution. A liquidity trap is implied by deflation. The government just can't sit around and not do anything... they
have to do something (even if that is the wrong thing).
I think Keynes said is best himself:
Practical men, who believe themselves to be quite exempt from any
intellectual influences, are usually the slaves of some defunct economist.
Madmen in authority, who hear voices in the air, are distilling
their frenzy from some academic scribbler of a few years back.
- John Maynard Keynes