MATTHEW BISHOP: What Would Keynes Do? - Review of ‘End This Depression Now!’ by Paul Krugman

Not surprisingly, as today’s leading interpreter of John Maynard Keynes, Krugman uses Keynes’s definition of a depression, “a chronic condition of subnormal activity for a considerable period without any marked tendency either towards recovery or towards collapse.” He attributes this to a classic Keynesian “liquidity trap,” in which an indebted private sector is so intent on rebuilding its savings that even interest rates of zero cannot tempt it to borrow and spend enough to get the economy working again at full capacity. And he offers the classic Keynesian remedy of the government making up for the lack of private spending by splashing the cash around itself. Even now, Krugman argues, full employment could be restored to the United States in less than two years, given the political will to spend a lot of money.