The fundamental failing of the Keynesian stimulus theory is that it neatly ignores the presence of financial markets, which have as their primary purpose transferring savings from those who do not currently need to spend to those who need the funds, either to spend or to invest.

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In theory, he and Congress could couple a bigger stimulus with more ambitious deficit-reduction by reforming entitlements (such as health care and pensions for the elderly) and taxes.

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The notion of Keynesian stimulus as a cure to a deep recession is at best a very costly unproven theory.

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Yet as I understand it, Keynesian theory is indifferent between spending hikes and tax cuts as a means of stimulus.

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