ete Keynesian Theory, with its allowances for monetary policy and the impact of interest on money. But having worked all that out, Keynes went on to argue that monetary policy and interest rate impacts would be very weak and ineffective in the conditions of the 1930's, because the economy was already in the liquidity trap. He concluded that the Simple Keynesian Model explained most of the changes in employment and production, and that the only policy that would really work to bring the depression economies back would be government deficit spending.Was Keynes right? Does the Simple Keynesian Model, with its multiplier effects, explain most of the changes in production and unemployment? To this day, there are economists who do not agree on that. My own opinion, for what it is worth, is that Keynes was pretty close to right -- that multipliers and income-expenditure interactions are among the most important factors in explaining fluctuations in employment and production. That is that poor business transactions and management account for much of the problems. That explains (to me) why government deficits kept rising in the 1970's and 1980's, even when conservatives who quite sincerely hated government deficits governed the country. The deficit spending was easy because of the popularity of pork barrel projects. In the short run, deficit spending works --and the short run is long enough to get them re-elected. In other words, the politicians were using deficit spending to buy votes to keep themselves in a job. Even with all of the supply-side fervor that was going around in the early 1980's the deficits continued to rise. But regardless of the effects of the multipliers and income-expenditure interactions, monetary policy is still important, indeed more important than ever. The conditions we have now are not those of the 1930's, or even of the 1980's. In almost all, perhaps all, of the developed countries, large government debts have ...
