Alex Tabbarok suggests that even if we accept Keynesian economics, Keynesian politics has failed (and he cites Krugman on that). Further, he argues that Keynesian politics may always fail, and that it may only be possible in totalitarian regimes (he cites Keynes - although I think he's jumping on the bandwagon rather than doing a close read on this one). He then suggests that, knowing this, what policies should we implement to address depressions before they happen.
I offered a comment that critiqued his initial premise about Keynesian politics. I wrote:
"This is sort of an odd view. If we accept, as you suggest we could at least theoretically, Keynesian economic analysis, then wouldn't a "failed" (what would we call this - 25% of the way? 30% of the way?) Keynesian policy still be better than a failure to attempt any Keynesian policy?
If we accept Keynesian analysis, shouldn't the policy be "do as much Keynesianism as you can get through a democratic republic and just understand you probably won't reach any kind of ideal"?
Not that your other options are bad ideas, I just don't see how the "failure" of the politics means that in politics we should abandon the analysis.
It's also worth noting that not everyone is so down on policy as Krugman. Many have pointed out that while fiscal authorities have not behaved in an especially Keynesian way, monetary authorities have done OK at least. That's something, right?
This is also just a failure of "Keynesian politics" in depressions. Presumably in periods outside the 1930s-1940s and post-2008 we have had successful demand management through both fiscal and monetary policy, and a decent re-evaluation and re-formulation of crude Keynesianism after the 1970s. You pick out the two depressions, but the whole post-war period can be broadly understood as "Keynesian politics".
If you are saying "we can't expect perfection", then of course that's true. But who ever did?"
Of course, there's absolutely nothing wrong with the sorts of things Tabbarok does propose (although I probably differ with him on the aid to states, for reasons I've noted here in the past about how that atrophies a robust federalism). He offers:
"What are the alternatives to Keynesian politics? Greater regulation to prevent crises from occuring is a legitimate response, although one that I wouldn't necessarily buy into in all particulars. Along the same lines, increasing wage, price and real flexibilities (e.g. relocation flexibility and public and private savings flexibility) would benefit us in future recessions. Automatic stabilizers such as unemployment insurance are one area that has worked quite well. What other areas can be automatized? Funding for states? How about an automatic payroll tax cut tied to the unemployment rate?"