A couple of years ago, I typed up an article on how I thought that Keynes was right. After reading it back to myself I realized that while I agreed with some of what he said, I disagreed with other stuff. For example, I like the idea of counter-cyclical spending, but not bridges to nowhere. Article got put in the round file (some regrets.)
Keeping the above in mind, here is how I would apply his theories.
Firstly, I would remove most of the discretion that governments have setting budgets by amending their constitutions.
Secondly, I would do this by forcing them to base their budgets on actual expenditures from the fiscal period 2-3 years before (research needed to determine the time lag). Most of the time this would result in the budget being less than receipts, as economies tend to grow. This would result in surpluses and a reserve fund.
When a recession occurs, government receipts would fall. Spending could be maintained, however, since budgets would be based on previous fiscal years. The government would, by default, draw down reserves and effect the countercyclical spending espoused by Keynes. This would mitigate the effect of the downturn without racking up debt because the reserves are already there.
The above would force building reserves during the good times and make them available for use during the bad. This is very appealing to me. I have made a habit of spending less than I take in because I want the funds available when I need it, be it due to a bad employment situation or preferably due to retirement. As I mentioned above. I'd like to see governments behave like households because they aren't different in the long run.
invite response
A couple of years ago, I typed up an article on how I thought that Keynes was right. After reading it back to myself I realized that while I agreed with some of what he said, I disagreed with other stuff. For example, I like the idea of counter-cyclical spending, but not bridges to nowhere. Article got put in the round file (some regrets.)
Keeping the above in mind, here is how I would apply his theories.
Firstly, I would remove most of the discretion that governments have setting budgets by amending their constitutions.
Secondly, I would do this by forcing them to base their budgets on actual expenditures from the fiscal period 2-3 years before (research needed to determine the time lag). Most of the time this would result in the budget being less than receipts, as economies tend to grow. This would result in surpluses and a reserve fund.
When a recession occurs, government receipts would fall. Spending could be maintained, however, since budgets would be based on previous fiscal years. The government would, by default, draw down reserves and effect the countercyclical spending espoused by Keynes. This would mitigate the effect of the downturn without racking up debt because the reserves are already there.
The above would force building reserves during the good times and make them available for use during the bad. This is very appealing to me. I have made a habit of spending less than I take in because I want the funds available when I need it, be it due to a bad employment situation or preferably due to retirement. As I mentioned above. I'd like to see governments behave like households because they aren't different in the long run.