The current debate over how to rescue the UK economy is a nice touchstone for the state of economic thinking in the main political parties. The Conservatives are talking about tax breaks for small companies to let them keep their staff employed, Labour will allow the deficit to grow (as it already was doing) to provide fiscal stimulus. Is Keynes still alive and kicking?
Well yesterday the government criticized the Tory plan for being 'unfunded', a charge the Tories denied. So we are still not that happy about coming out of the closet on Keynesian methods of dealing with downturns - nobody wants to admit that openly that it involves increasing government borrowing on a big scale. Why not, if that's what economic theory advises? Because it goes against the grain of the 'fiscal responsibility' discourse that Labour adopted 15 years ago to head off charges that they would mess up the economy. If you spend a decade talking about 'prudence', it then hurts your credibility if you say we have to borrow our way out of a recession. A second reason, of course, is that most people have no understanding of the logic of Keynesian fiscal and monetary stimulus, and simply regard it as yet another example of our love affair with debt. Which of course it would be, if we allowed it to run on through the next upswing as well.
So in the end, we will allow the automatic stabilizers to work by maintaining current spending and tax levels, Labour will probably pretend it's being prudent, and the Conservatives will condemn them for being irresponsible and burdening future generations with debt. What Labour really should do instead is cut taxes for the lowest paid (they will spend the money, not save it) and use the opportunity to redistribute some wealth from rich to poor. It will help the economy and help them politically. However, it does risk losing middle England votes, and that's why it probably won't happen.