The evidence is very strong that the Keynesian economic model is really quite good and had the federal government poured money into the economy in order to maintain pre-recession level production, we might be out of this slump by now. However, one big issue that people (politicians included, they are people too!) can’t seem to get over, is “the magic of zero,” as Matt Yglesias puts it. Pouring money into the economy required the federal government to rack up debt, a politically unsavory move. However, if the federal government had had big pile of cash sitting around, then that same amount of stimulus would have simply depleted existing reserves. These two scenarios cost the same amount and differ only by whether we’re above zero or not, yet appear to have very different psychological effects.

The solution seems simple, right? If it is far more politically tractable to deplete a cash reserve than it is to run a deficit, then all we have to do is build up a cash reserve, right? That is actually one of the principals of Keynesian economics as I understand it: when times are good, we need to build a surplus. Well, the U.S. was in exactly this situation in the late 1990s with a budget surplus before Bush came to office and decided to kill the surplus in the form of tax relief. Uh-oh. So everything was fine and all we had to do was stick to the plan, then some conservatives came along and ruined the plan. That’s certainly a typical liberal take on the situation, but unless that particular interpretation can be used to convince voters not to elect people who don’t believe in Keynesian economics, it isn’t particularly useful.

In a practical sense, any economic policy must also make for feasible political policy. So is it possible that the Keynesian economic model, as good as it is, isn’t ever going to be politically tractable?  Maybe our imperfect political system will always ruin our ability to successfully implement Keynesian economics.

This idea is exemplified in paper I wrote about Marxism more than 10 years while in college. You see, Marxism is actually a really good idea—the political and economic models make for a really good looking and happy society. Unfortunately, any actual attempt to implement Marxist ideas seem to result in governments that are quite totalitarian, suppress freedom of citizens, and so on. The details for its failures don’t matter, the point is just that even if the model is good, the implementation may not actually be possible.

That said, Keynesian economics as implemented by our representative democracy seems to do pretty well (certainly compared to Marxism!!!). On the other hand, if the model can never be applied to its full potential due to realistic political constraints, maybe there’s a better model, one that can actually work better within those constraints.

(I’m not an economist, so feel free to correct my lingo or gross misunderstandings.)

Update (20 minutes later): I realized that I’m simplifying things a bit. On the most basic level, Keynesian economics is just really good at diagnosing what has happened and what will happen under certain conditions. In that sense you can’t “implement” the model, it either fits with what’s happening, or not. What I mean by “implement,” is then to use the model assess the value of particular policies and decide how to move forward.