Keynesian theory can be used, but I do not think it can solve all the problems that is plaguing the US now. The government is already so much in debt, trying to find ways to increase government spending to stimulate the economy is going to be hard. Personal spending on local goods would help to boost the economy, but the americans need to be educated about this.

“Yes, it was Keynes who thought - “Well, if the problem is investment, then all the government need do is spend”. But how does a government do that when its tax revenues are lower due to a recession? It borrows the money. Lo and behold, the National Debt rises.”

No, that’s not the case. You could draw a graph showing the rise of national debt in America and in every single case it is linked to war. America had no debt before the Civil War because the debt from the Revolutionary War had been paid down. It rose astronomically after the Civil War and continued to rise with every subsequent war until Ronald Reagan left office with the debt standing at $4 trillion. Clinton and Volker balanced the budget in the nineties and it would have stayed balanced for the next quarter century but then, disastrously, Bush and Cheney conned their way into the White House, shredded the Clinton/Volker plan, told their Secretary of the Treasury that they didn’t ‘need to worry about deficits’, threw away the surplus on shock and awe followed by war and when the surplus ran out they borrowed from the Chinese and the Japanese leading to a deficit of $14 trillion. The budget can be balanced, as Clinton proved, but that wouldn’t suit the war mongers at the Pentagon and the CIA who are the main recipients of the $1 trillion America spends every single year on weapons, interference in other people’s wars and wars of choice. America’s present economic collapse is a self-inflicted wound and as long as the media encourages the mantra of ‘don’t tax the rich, hate the government but support the war’ the wound will continue to fester.

Lafayette, mon ami:
“The Great Recession, it is sad to say, needed WW2 to end. Do we need another world-war to end this one? Yes, is what the Republicans are saying ...”

Which Republicans are saying we need another world war?

Lafayette, good seeing you again & thanks for the breakdown:

My $1Trill stimulus figure was a rounding.  However, there are those who think it’s true cost is much much higher.
http://blog.heritage.org/2009/02/12/true-cost-of-stimulus-327-trillion/

My point was whether $275B, 787B, $1T or $3.27T, we should get a damn bridge, already.
Something pretty and new for Rachel Maddow to stand in front of.

“All of which was necessary to contain unemployment at 9%.” 
That’s gonna be a tough sell for Obama come election day.  “Vote for me, it woulda been worse!” 
Time will tell on that one. 
Still seems a long way off.

os: We had this $1 trillion stimulus deal. So where’s our damn bridge?

It was not $1 trillion - get your figures right.That $1 trillion is what Dubya spent over in the sandbox - according to the economist Joseph Stiglitz.

The amount was $787B and consisted of:
  * $288 billion in tax cuts.
  * $224 billion in extended unemployment benefits, education and health care.
  * $275 billion for job creation using federal contracts, grants and loans.

All of which was necessary to contain unemployment at 9%. This recession is the worst since the Great Depression - and that one took WW to end.

GDP = C + I + G

TG: Rather, as he writes in The General Theory, “The weakness of the inducement to invest has been at all times the key to the economic problem.”

We have to get the rich to invest. Specifically, we have to get the rich to invest “by employing labor on the construction of durable assets.” We don’t have to get the rich to consume. They will gag.

All of the above is true, but it was said in the 1930s. We are no longer the same economy.

In fact, the key point is investment in production and augmentation of production. How does an economy prompt that investment, The answer is in a wee bit of mathematics.

The Gross Domestic Product has three components. This is the first and most important equation that you will ever learn taking EC101:
GDP = C + I + G.

The three components are Consumption, Investment and Government Spending. In fact, when we look at that equation, there is a hierarchy. Consumption is far, far more important than Investment and Government spending. Why?

Because NO business investment is made without there being a good reason to believe it will reply to a need in terms of Consumption (by people like you and me). There MUST BE a Return-On-Invesment (ROI). With no reasonable expectation of ROI, Investment will not occur, since it is useless.

Investment, as you knnow, means that companies both hire and purchase equipment to expand their production of goods/services. This enhances Consumption (where such expenses are accounted in the above equation). It also decreases Unemployment, which has the key results of both lowering Government expenditures and enhancing Consumption (because of increased earnings available for consuming from transforming the unemployed into the employed.)

Without tax revenues, which derives from Sales and also Income Taxes (both dependent upon industry/commerce offering products/services that we consumers want to buy), there cannot be any additional Government spending either.

Our problem presently is that, with all the unemployment, Consumption is stagnant at a lower level than seen habitually. Why? Because unemployment has forced households to spend upon only first necessity goods/services. And companies have shred workforce to meet that reduced pattern of consumption.

Yes, it was Keynes who thought - “Well, if the problem is investment, then all the government need do is spend”. But how does a government do that when its tax revenues are lower due to a recession? It borrows the money. Lo and behold, the National Debt rises.

The Great Recession, it is sad to say, needed WW2 to end. Do we need another world-war to end this one? Yes, is what the Republicans are saying ...

MY POINT

Government expenditure is absolutely necessary to stoke the fire of Consumption for goods and services. It worked with Obama’s first effort (just after his administration took office) to stimulate the economy by containing unemployment at 9% - which could easily have risen to 12/15% (or even 20/25% as it did during the Great Depression.)

It’s a simple as that. But with the T-Party (T for Troglodyte) stonewalling any increase in expenditures - out of the idiot notion that we can’t afford it - then this present recession will continue.

POST SCRIPTUM

Yes, Consumption shall gradually crawl out of the hole all by itself without any prompting by Government spending. But only after a very long and difficult period of economic stagnation.

@diamond, you write:
“(the Rich) have to invest in manufacturing, in other words, in real products that create real wealth and not in Ponzi schemes like derivatives.”

Real products like, say bridges and dams?

“We’ve lost our ambition, our imagination, and our willingness to do the things that built the Golden Gate Bridge, the Hoover Dam…” 
President Obama, San Francisco 10/25/2011,
http://www.msnbc.msn.com/id/45039424/ns/politics-white_house/,
see Obama to Offer Student Loan Relief, 1:28

Ok, Mr. President:
We had this $1 trillion stimulus deal.
So where’s our damn bridge?

—

@gerard, you write:
“The profound silence on the part of Wall Street in speaking creatively to the Occupying 99% indicates a chasm larger than the Grand Canyon.”
No it doesn’t. 
It indicates they don’t give a rip about OWS. 
At this point, why should they?

diamond - Thanks for stating, clearly, what more people need to understand about Keynes and our economic system.

Unfortunately, it’s the part about “the economy is a human construct, NOT A RELIGION, and that it has to work for everyone if the “SOCIAL CONTRACT” between capital and labor is not to be broken…...” that Americans will never understand. They’ve been propagandized for so long now to belive that it’s all about corporate interests, that they truly have forgotton how to look out for their own interests.

The profound silence on the part of Wall Street in speaking creatively to the Occupying 99% indicates a chasm larger than the Grand Canyon.  Not to mention lack of responsibility.  Perhaps paying the police to put the 99% behind bars is a more viable solution?

The first and most crucial thing to do is to separate the trading banks from investment banks so that they can’t claim that a debt, which is a liability, is an asset and then sell it on to someone else and make money out of it while that person then sells it on to someone else and also makes money out of it. This is a Ponzi scheme by another name. Keynes was one of FDRs advisers and the New Deal was partially his work. Keynes’ genius was that he made economic theory ‘reality based’. He worked with commonsense not ideology. He understood that the economy is a human construct, not a religion and that is has to work for everyone if the ‘social contract’ between capital and labor is not to be broken.  The deal was that the rich save and invest which creates jobs and a better standard of living while labor worked for a relatively modest return. But when the rich start playing silly games, investing in put options and gambling that stock will fall in value instead of investing in manufacturing real products and creating jobs they move from being the leisure class to being the parasite class and the deal is off. And the fact that they refuse to pay their taxes certainly doesn’t help.

It’s also not enough to get the rich to invest, they have to invest in manufacturing, in other words, in real products that create real wealth and not in Ponzi schemes like derivatives.