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Sensible Keynesians know there is no easy way out

In the long run we are not dead, we will still be recovering from the Great Recession. We should therefore weigh stimulus policies not just on their immediate effect but on their consequences over time. Sensible Keynesians recognise this. They bet that reviving growth through government spending today outweighs the future loss of growth as the debt taken on to fund current spending is paid back. Consider two circumstances where this may apply.

The first is in a full-fledged panic where demand collapses, banks and companies fail and organisational capital is destroyed. Save for possibly Greece, it is hard to argue any industrial country is there today.

The second is when persistent high unemployment leads the long term unemployed to lose the habits and skills that make them employable. This is probably the more pertinent case in several industrial countries, such as the US and Spain. Increasing employment in a sustainable way today could more than pay for itself, if people who would otherwise drop out of the workforce earn incomes.

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