Even if the government spends itself into bankruptcy and the economy still does not recover, Keynesians can always say that it would have worked if only the government had spent more.
Sentiment: NEGATIVE
In the '30s, the Keynesian stuff worked at least in the sense that you could print money without inflation because there was all this productivity growth happening. That's not going to work today.
Keynes's contribution was not just to advocate spending government money in the middle of a recession. Every government had done that going back to the days of the Irish potato famine. What he gave to us was a way of thinking about the magnitude and the dimensions and so forth.
The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis.
It's true that monetary policy was too lax for too long, and the government encouraged lending to people who were unlikely to repay their loans.
You cannot prove this in real time, but when economists 20 years from now write a book on the recovery, it may well be entitled, 'It could have been much better.'
If you don't have a functioning financial system the world economy won't be revived. All the major economies have their responsibility to assist at a pace which is required to clean up the balance sheet of the banking system and to ensure that credit flows are resumed.
If the financial system collapses, it's really, really hard to put it back together again.
The failure of Lehman may have allowed the government to do more to prop up the economy than it otherwise could.
I won't dispute that bankers' privileged treatment in the 2008 crash merits populist scorn. But unfortunately, without a bank bailout, there probably would have been a worldwide depression.
I don't mind the government accruing debts as long as every dollar is spent effectively with a high return. That works out fine. If you accumulate debts and waste your money, that's, of course, a disaster.