By Michael Munger
John Maynard Keynes observed, only partly tongue in cheek, that the solution to unemployment is jobs, any jobs:
If the Treasury were to fill old bottles with bank notes, bury them at suitable depths in disused coal mines which are then filled up with town rubbish, and leave them to private enterprise on the well-tried principles of laissez faire to dig them up again… there need be no more unemployment and, with the help of the repercussions, the real income of the community and its capital wealth also would probably become a great deal greater than it actually is.
Governments seem to have stumbled upon a modern version which seeks similar results to those planned by Keynes, but in which private spending rather than just government spending is encouraged to smooth the economic cycle. Prompted largely by government policies in both the UK and USA, private consumption did not dry up as the most recent cycle turned down. Instead it increased, largely at the expense of saving and by increasing levels of indebtedness. It remains to be seen if the new model Keynesianism can escape the consequences of the old.