In a post that Andrew Jackson, social and economic policy director of the Canadian Labour Congress, calls "absolutely brilliant and compelling," David Harvey argues that the stimulus package is bound to fail. On the one hand, the current package is not big enough and on the other hand, the US can't finance a big enough stimulus package because of its recent debt history. Brad DeLong calls Harvey's argument "intellectual masturbation." To which Harvey responds, lamenting the arrogance of neoclassical economists.
And now, the Sandwichman jumps into the fray with his two cents worth...
A distinction needs to be made between “Keynesianism” (even Harvey’s “strong”, “true” or “full-fledged” Keynesianism) and what Keynes actually thought about economic stimulus and full employment.
Keynes viewed government investment in infrastructure as “only one particular application of an intellectual theorem”. The other two were consumption and reduction of the hours of work. We hear about the first two applications, consumption and investment, incessantly but it was the third strategy, working less, that Keynes pronounced the “ultimate solution” to full employment. See his 1943 Treasury Department memorandum on “The Long Term Problem of Full Employment” and his 1945 letter to the poet, T.S. Eliot.
Keynes was concerned with full employment, not with economic growth. It was his successors who shifted the emphasis from the one to the other. They did so, I would argue, to suit their mathematical models more than anything. Be that as it may, in the 1970s Fred Hirsch showed how economic growth drained resources from both non-market activities and even from final consumption goods. Increased competition for scarce positional goods diverted resources into intermediate goods.
There remains a taboo against talking about work-time reduction as a possible response to the crisis. Dean Baker (he who ‘called’ the housing bubble in 2002) wrote a pair of op-ed pieces a few weeks ago in the Guardian and the New York Daily News calling for tax breaks for work time reduction. I have seen no uptake of Dean’s suggestion from the stable of liberal Keynesian economists — Krugman, et. al.