More on the difficulty with Keynesian demand management

On Monday I discussed a posting from Tim Worstall which pointed to the political of curbing government borrowing when the economy is booming.

Now Stumbling and Mumbling has taken up the debate:

I’m reminded of James O’Connor’s The Fiscal Crisis of the State, written in 1973.

State spending in a capitalist society, he said, must fulfil two functions: to raise profits, for example by maintaining aggregate demand; and to legitimate the system by ameliorating inequalities. But, he said, these forces for higher spending increased faster than people’s willingness to pay tax. The upshot was a tendency to bigger budget deficits, even in decent economic times.

You could argue that New Labour has been trapped by just these forces.

I recommend the whole posting. Does anyone want to stand up for Keynes?