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Keynesian Economics Resurrected

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Los Angeles Times

The Tampa Tribune

Published: February 9, 2009

WASHINGTON - In a measure of how quickly its options are shrinking, the United States is about to embrace an economic theory that widely was thought to have been discredited for most of the last generation: the idea that great bursts of deficit-funded government expenditure can jolt an economy back to growth.

President Barack Obama's plan, a package of tax cuts and spending increases, represents an unexpected comeback for the ideas of the late British economist John Maynard Keynes, who argued that governments could end the Great Depression of the 1930s by spending heavily to maintain demand for goods and services until frightened consumers and damaged businesses gained the courage to resume buying and selling on their own.

With the nation facing perils unseen since the Great Depression, the incoming administration is looking for inspiration to President Franklin D. Roosevelt, the New Deal and Keynesian economics.

WHAT IS KEYNESIAN THEORY?

•The theory was that the government had to convincingly signal that its spending was reviving the economy.

•Once that happened, the private sector - businesses and consumers - would resume spending.

•Timing and the political atmosphere were critical to the success of Keynesian economic theories.

•The size of the stimulus had to be large enough to seem likely to have an effect, and action had to be taken quickly and decisively, without the kind of political haggling that could undermine confidence.

Los Angeles Times

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