This from Krugman is great....
Obama explains his silly electioneering spending freeze thus:
[F]amilies across the country are tightening their belts and making tough decisions. The federal government should do the same. (Applause.) So tonight, I’m proposing specific steps to pay for the trillion dollars that it took to rescue the economy last year.
Obama, of course, understands Keynes even if he has probably never read him. But he has to pretend that the best way to deal with a private sector demand shock is to add a public sector one to it.
Thankfully, in Britain, none of our politicians has the guts to broach the spending cuts that this kind of Hooverism would entail: Cameron has now come up with the formula that he would deal with the deficit through 'swift action' which would not, however, be 'extensive'. In other words, let the deficit rip to sustain voter sympathy, and incidentally, consumer demand.
Maybe elections - condemned by much political economy as a source of bad economic policy - can end up being good for policy making. If elites are convinced that sado-monetarism is the best way but can't persuade the public to take the pain, then we will not get sado-monetarism. Keynesianism worked politically in the postwar 'Golden Age' because it not only seemed to work economically, but it avoided imposing gratuitous pain on median voters.
What changed in the 1980s and 1990s to turn that around? Did median voters really do well out of central bank independence and spending restraint, or did they just become convinced that they would? Or did the median voter somehow count for less after the 70s? (Answers coming soon....)