To those of us who first encountered the dismal science of economics in the late 1970s and early 1980s, the current debate on fiscal policy in the western world has been – no other word will do – depressing.
It was said of the Bourbons that they forgot nothing and learnt nothing. The same could easily be said of some of today's latter-day Keynesians. They cannot and never will forget the policy errors made in the US in the 1930s. But they appear to have learnt nothing from all that has happened in economic theory since the publication of their bible, John Maynard Keynes's The General Theory of Employment, Interest and Money, in 1936.
In its caricature form, the debate goes like this. The Keynesians, haunted by the spectre of Herbert Hoover, warn that the US is still teetering on the brink of another Depression. Nothing is more likely to bring this about, they argue, than a premature tightening of fiscal policy. This was the mistake Franklin Roosevelt made after the 1936 election. Instead, we need further fiscal stimulus.