The great debate in economics is whether heavily indebted governments in Europe and the US should keep spending to stimulate economic recovery or move quickly to balance the books.

John Maynard Keynes, the Depression-era economist who once wrote for The Banker, but whose ideas fell out of favour during the 'markets era' of the past three decades, is very much back in vogue. His ideas and quotations are being used to support the case for continuing deficit spending, underwritten by the threat that failure to do so will presage a return to the economic hardships of the 1930s.

It is debatable, however, as to whether Keynes - if he could speak for himself - would support this simplistic transfer of his ideas across an 80-year time span without due recognition of the vast changes in the global economy since then.

These include the emergence of massive global capital flows that are able to deliver their verdict on economic policy in a millisecond; planning rules that prevent deficit spending on infrastructure projects taking place in any reasonable timeframe; and the impact of fiscal stabilisers (welfare systems) in modern economies that prevent a collapse in demand in a downturn.

One of the vulgar Keynesians' favourite quotes, to support their case, is: "The boom, not the slump, is the right time for austerity at the Treasury." The problem is that during the last boom, governments practised profligacy on an unprecedented scale - the UK and the US in particular. This now leaves them very limited room for manoeuvre in tougher times.

Governments which insist on piling up debt upon debt risk a bond investors' panic, a currency crash and an enforced debt restructuring which would make the feared 'double-dip recession' look like a picnic.

Even the US, which has the advantage of owning the world's reserve currency and the best opportunity for monetising its debt, is not immune from this scenario although you wouldn't think so considering the current administration's failure to tackle the deficit issue.

Keynes suggested that governments spend money digging holes to create wealth, an idea seized upon by vulgar Keynesians to support their case for further spending. Do they really believe that Organisation for Economic Co-operation and Development governments could persuade their unemployed to tear up their welfare cheques and pick up a shovel? In any case, the planning inquiry for a new Hoover Dam would last a decade.

"When the facts change, I change my mind. What do you do, sir?" Keynes once said.

His uncritical followers have failed to follow this logic and by so doing denigrate his great contribution to economics.

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