[justshutupandtakeit]

This is no Keynesian solution. Keynes' theory was devised to try and explain why interest rate cuts during the Great Depression did NOT stimulate more economic activity. He came up with the idea of the "Liquidity trap" which essentially says that a certain point interest rate cuts will be ineffective as a stimulus. This has to do with such technicalities as a flat portion on the LM curve.

Keynes description of monetary policy's ineffectiveness at combatting recession was because you cannot "push on a string."

Japan has been in a liquidity trap for years with interest rates in real terms being negative.

[plusone]

And Keynes solution was huge govt deficits to stimulate the economy (coupled with tax cuts). I don't know if taxes are any lower than they ever have been, but on the deficit side, the govt has been keeping up its end of the stick (or string, as it were). The Japanese have been running huge deficits for ten years, and to no avail. There debt has built up so much, their credit rating has been downgraded to below that of many African third world countries (from what I've read on different sites, anyway). If you want a reason why Keynsianism doesn't work, Japan is the poster child. Thanks.

[plusone]

Went back and read my original post. You are quite correct in your critique. I was juggling three threads at the same time and didn't put enough thought into this one. Yes, Keynes talked about the liquidity trap and pushing on a string, the uselessness of lowering interest rates to spur the economy. People tend to think of Keynsianism as tax-and-spend. Not quite correct. During recessions, he advocated deficits and tax cuts to push up aggregate demand and boost the economy. Once good times returned, and inflation returned, Keynes said that the govt must run surpluses and raise taxes to reign in demand, lower inflation, and slow the economy. Over one complete business cycle, the books would be balanced. In fairness to Keyes, govts only took half of his advice. They ran deficits and raised taxes, and never balanced the books. Would his theories have worked if followed correctly? Thanks.