Keynes & using Deficits for Fiscal Control

I recall being lectured in Economics II back in the early 60’s on Monetary policy and its usefulness in helping to control or manage the economy. Our lecturer at the time told us not to concern ourselves with studying this in depth since no government in their right mind would ever consider using such a bludgeon like instrument - like trying to repair a watch using a crowbar and sledge hammer.

Way back in Biblical times Pharaohs – stored up surpluses in the fat years in order to release the savings in the lean years. This is exactly what Keynes advocated in his writings. Because booms and recessions are a regular feature of the 10 year business cycle then all governments should be ready to tax appropriately as business activity picks up so that funds will be available for spending on essential services etc. thus maintaing employment levels and minimising the human suffering
arising from cyclical events.

This fiscal governmental approach can work quite effectively to help even out the worst effects resulting from business cycles. However, its success or otherwise will be entirely dependent on the willingness of the government at that time to begin taxing appropriately in order to build up a surplus to fund the next downturn. This absolute necessity is of course conveniently overlooked
in democratic economies where governments are so beholden to the votes of vested interest groups.
Taxes are always unpopular so the inevitable result is for the government of the day to put off taxing and just let the deficits keep growing and growing and growing.

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