The impact of fiscal stimulus packages is very limited in the short-run and positively damaging in the long-run. That was the argument put by Professor Robert Barro at the IEA's twentieth Annual Hayek Memorial Lecture on Tuesday night.
Barro's argument is that there should be greater emphasis on reducing marginal tax rates. This, he claims, was a key contributor to the impressive economic growth figures achieved under both Reagan and Clinton.
Here in the UK, Barro's analysis has immediate implications for the policy of the coalition government. There's not much point, as a worker in Britain, trying to get a salary increase from £100,000 to £120,000. You'd lose nearly two thirds of it in tax. Those earning around the £100K mark may not be high on the list of human beings you're most concerned about, but to place such an anti-aspirational block in the way of the successful becoming yet more so seems to be guided by envy rather than common sense.
In the wake of the financial crash, different policy prescriptions are being undertaken in different jurisdictions. Under President Obama, a colossal programme of fiscal expansion has been attempted. Here in Britain, the coalition is undertaking a modest programme of fiscal retrenchment - seeking to reduce spending in real terms by about 3% over a Parliament.
Last year, this led Professor Robert Skidelsky, the respected biographer of Keynes, to remark, "We are about to embark on a momentous experiment to discover which of the two stories about the economy is true. If, in fact, fiscal consolidation proves to be the royal road to recovery and fast growth then we might as well bury Keynes once and for all."
Skidelsky may be overstating the extent to which economists and others can reach unanimity, even in the wake of compelling empirical evidence. Certainly, not all of the 364 economists who wrongly and loudly predicted doom and gloom in the wake of the radical 1981 budget in the UK, have been as public in admitting their mistakes.
In any event, of course, the empirical evidence is often more contestable than we suppose. If economic recovery does falter in the UK, those lobbying for increased public spending will no doubt blame the cuts, but the chaos unfolding in the European Union or a further financial crisis may be the real causes. When fiscal stimulus packages produce highly disappointing results, Keynesians are prone to claim that this just shows that there simply wasn't enough of it in the first place. Rarely do they concede that the policy was wrong from the outset.
The countries that produce the best rates of growth will not be those who seek to get out of a problem of overspending by indulging in a further bout of it. They will be those who make the substantial structural changes necessary to free up markets and encourage employment. At present, the debate is too focused on public spending alone. Getting spending under control is a major challenge - but it's far from the only one.