Sovereign: It "hit me" last night that all Keynesian economics boils down to is that money has to be printed up during slumps.

LeRoy: My original reply to this post must have been written when I was very tired. Because this is really not even a close approximation to what 'Keynesian economics boils down to'. Keynes, living during the 1930s, was deeply aware that at some times, during especially deep economic slumps, monetary policy (i.e., printing more money) becomes singularly ineffective. The economy gets stuck in what has become known as a 'Keynesian liquidity trap'. There is not much question that we are in a Keynesian liquidity trap right now, and have been since September of last year. Print more money, and the banks are simply sitting on it. They are not lending it out, because the banks are scared. And very few consumers want to borrow, in any event, because consumers are scared, too. A day or two ago, The Wall Street Journal reported that many corporations are sitting on big piles of cash. They are hoarding their accumulated earnings, because they, too, are scared. In such a situation, 'printing more money' simply doesn't work. So why would Keynes have advocated it? In fact, he didn't. His central argument, the central thrust of Keynesianism, is that in such circumstances, fiscal policy is the only way out of a depressed economic situation.

Which, indeed, is probably correct.