If you follow the Keynsian model, it works. When times are bad, you spend a little more to pick up the slack and help things get back on track. When times are good, you cut back on spending and raise taxes because raising taxes actually helps the market at the end of the day. And that means cutting expenses EVERYWHERE, even if it is politically unpopular. The problems is that both parties have their sacred cows in the budget that neither one is willing to give up.
Furthermore, it can be just as risky risk when the market is doing TOO WELL as it usually leads to a bubble and a subsequently collapse. So the government takes money out of the system by raising taxes and decreasing the money supply to prevent too much liquidity. And it can pay down the national debt in the process.
Minimizing the peaks and troughs of the business cycle creates less problems for the market and at the end of the day allows you to take in more tax revenue. I hear people talk about being fiscally conservative, but the next thing that comes out of their mouth is that they want to cut taxes. I hate to break it to you, but you are never going to pay down the debt by cutting government spending alone. Its over $10 trillion.
In comparison to a more monetarist viewpoint, I think it works well if people follow it, but the problem is people never follow it. And it isn't very useful when you run into problems too big for simply increasing or decreasing the money supply to solve. There are certain situations where if the government didn't step in, it would just be too catastrophic. The recent collapse of the financial market was a great example. The government should avoid getting involved in the market whenever possible. But if you honestly think in this day and age with a global market and multi-trillion dollar financial institutions that the same laissez-faire economics that people dreamt up hundreds of years ago during times when it took three months just to sail across the ocean will work perfectly, I think you are fooling yourself.
At the end of the day, the market is pretty stupid. People like to talk about how smart it is, but it can just as often be stupid and irrational. The government has a vested interest in how the market does. The government is also the largest sole contributor to GDP in just about every country in the world. The government IS part of the market. And it is also the only entity with the resources to deal with problems that the market can't. Why should the government just sit back and do nothing?
We had two bags of grass, seventy-five pellets of mescaline, five sheets of high-powered blotter acid, a salt shaker half full of cocaine, a whole galaxy of multi-colored uppers, downers, screamers, laughers…Also a quart of tequila, a quart of rum, a case of beer, a pint of raw ether and two dozen amyls. The only thing that really worried me was the ether. There is nothing in the world more helpless and irresponsible and depraved than a man in the depths of an ether binge. –Raoul Duke
It is hard to shed anything but crocodile tears over White House speechwriter Patrick Buchanan's tragic analysis of the Nixon debacle. "It's like Sisyphus," he said. "We rolled the rock all the way up the mountain...and it rolled right back down on us...." Neither Sisyphus nor the commander of the Light Brigade nor Pat Buchanan had the time or any real inclination to question what they were doing...a martyr, to the bitter end, to a "flawed" cause and a narrow, atavistic concept of conservative politics that has done more damage to itself and the country in less than six years than its liberal enemies could have done in two or three decades. -Hunter S. Thompson
