[GrileVege]

Most states have massive amounts of debts, so trimming the peaks, if it happens, is usually in the form of reducing state debt.

[foodselfdourileka]

2. Will it ever be possible for politicians to drastically cut spending? Why not? Why stupidly wait until events force ones hand?

They usually don't want to hurt potential voters or lose other forms of support. Until they're forced to do it and can sell it as a "no alternative" move for the greater good.

*Bebros 0,5 cents

[DenisMoor]

it is very simple... such a government will have VERY reduced chances of being elected... and noone want's reduced chances do they?

I add 0.5c on top of BeBro's

edit: and Norway is borderline communist anyway so they don't count

[MIBgirlsXXL]

I seriously read this as "Why doesn't god save Texas?" when I first glanced at the title.

[hrthwhr]

That's what we did here, set up a reserve fund where oil export tax went.

[Lypepuddyu]

The best thing to do in a boom time is to invest in your country so that it can survive a bust better.

That is to invest in infrastructure, education, health, etc.

JM

[forebirdo]

Arrian indicates he is a Keynesian. A lot more people are these days than a few years ago. Clinton and those congressional sessions agreed with you and Arthur. The last eight years in the US has seen the rise and fall of the "Get it while you can" school. We could hang a few of them for violating the Geneva convention. According to the outcome at Nuremburg, intentional torture and the ordering of its use are hanging offenses. So I guess the got it while they could.

[JANALA]

Arrian indicates he is a Keynesian. A lot more people are these days than a few years ago. Why would anyone be a Keynesian over an Austrian? I mean really. Keynes is why we are in this mess.

[loginereQQ]

Why would anyone be solely a Keynesian or a neoclassicist? How would you possibly explain both short-term and long-term economic behavior?

A fair point, though I suspect purely neoclassical economics is not useful over any time frame.

Any country with a huge pile of debt could easily trim the peaks and find a way to "invest" the surplus in debt reduction. That has the added benefit of cutting future interest payments on the debt.

Massive public investment makes most sense when there are unemployed workers you can put to work instead of displacing private investment, i.e. now.

[KellyMP]

I suspect purely neoclassical economics is not useful over any time frame.

I have no idea why you think neoclassical economics is not useful over any time frame greater than that needed for prices to adjust.

[Waymninelia]

I'd trust your opinion more if you didn't seem to think that neoclassicists assume rationality on the part of economic actors while Keynesians don't. You seem to have more of an issue with economics as a whole than with one school of it.

[QwOpHGyZ]

Isn't the interest rate close to 0 in the USA now?

The problem is they are in recession and most things to take countries out of recessions have already been done.

[feannigvogten]

Err...I'm not THAT dense, I assume a savings pool would be a mixture of commodities, bonds from around the world, energy, different currencies, etc.

I'm not suggesting that the government suddenly try to sell a gold bar the size of my house

But, yes, PMs of all kinds should be part of a savings fund since they are less volatile historically.

"We should invest in education, health.."

Well why can't you do both?

I think there are diminishing returns to education based solely on money, and that proper regulation and socio-cultural forces are often much more important.

Also, the question is partially about how to pay for entitlements like health and education. We should immediately pay all existing revenue and borrow from future generations to pay for today?? WHY? Why not get the finances of the state on some sort of vaguely, slightly reasonable basis before you go off trying to make all children above average.

[jimbomaxf]

Which is why Keynesian theory no longer works. They are pushing against a rope.

Just stop, Ben. Monetary policy isn't the only way to stimulate an economy.

[crumoursegemo]

I'd suggest nothing, but that doesn't mean there aren't options. Fiscal policy will be tried, although it probably won't make much of a difference at this point.

[southernplayer99]

What about Klein? At least Klein built up that surplus.

They both are positive geniuses compared with Campbell. Carbon tax is an albatross.

[Rchzygnc]

Which is why Keynesian theory no longer works. They are pushing against a rope.

-Arrian

edit: to be clear about the source of my mirth: agreed that the zero interest rate means they really can't do anything more via monetary policy. It's just funny that you think this means Keynesian theory no longer works. Keynesians have been proposing a fiscal stimulus for some time now, because they recognized the limitations of monetary policy.

[BoomBully]

Are those proposing this Keynesians? Just curious, 'cause Krugman has been blogging about the dangers of a liquidity trap and the need for a gigantic fiscal stimulus for months now.

-Arrian

[KRbGA0Bg]

Are those proposing this Keynesians? Just curious, 'cause Krugman has been blogging about the dangers of a liquidity trap and the need for a gigantic fiscal stimulus for months now.

-Arrian

Yes, Krugman is one of those that suggested that particular alternative might be theoretically feasible, although needing much further study before anyone could seriously propose it.

For the record, I did not believe monetary stimulus would be useful in the current crisis. If firms do not expect to be able to make profitable investments in the short or medium-term giving them free money wouldn't stimulate the economy. (Hence the need for fiscal stimulus.)

[Charryith]

to be clear about the source of my mirth: agreed that the zero interest rate means they really can't do anything more via monetary policy. Which is all I was saying. Keynesians themselves admit that their monetary policy doesn't work outside of a target interest rate range. Hence the 'pushing on a rope' quote.

It's just funny that you think this means Keynesian theory no longer works. Keynesians have been proposing a fiscal stimulus for some time now, because they recognized the limitations of monetary policy. It won't work though. The only thing that will work is allowing interest rates to rise, followed by tax and spending cuts.

Why would you want to lend at 0 percent? If a loan is more risky, then the rates have to increase.