Reply #18: Is fiscal policy dead? [View All]

[many a good man]

Keynes theories shook up the economic policy world. Taken in historical context, fiscal policy was not yet seen as tool that can manage the economy. Government spending was minimal and deficits were only run in wartime or crisis. Priming the pump of the economy by spending/tax cuts to increase the velocity of money in the economy was unthought of, or taboo.

Its now true that monetary policy has taken the spotlight. But that's only because politicians don't have the discipline to honestly implement responsible fiscal policy (Clinton may be the only exception). After all, the two main fiscal stimulants, deficit spending and tax cuts, are the centerpiece of *'s economic "policy." Along with rock bottom interest rates, * has the pedal to the floor on all stimulus tools.

That's all really just surface level thinking, though. Keynes' theories have undergone substantial criticism and refinement over the years. Yet his ideas have become conventional wisdom and his influence is still felt.