"This wouldn’t require permanent deficits as long as, once economic growth returns, revenues from a progressive income tax refill the coffers."

Robert Reich joins the Keynes parade:

"Not long ago I was talking to someone who once had been a deficit hawk but the current recession had turned into a full-blooded Keynesian. He wanted a stimulus package in the range of $500 to $700 billion. "Consumers are dead in the water," he said, fervently, "so government has to step in." I agreed. But I didn’t tell him his traditional Keynesianism is based on two highly-questionable assumptions in today’s world, and the underlying logic of Keyenes leads us toward something bigger and more permanent than he has in mind."

Why didn't you tell him?

"The first assumption is that American consumers will eventually regain the purchasing power needed to keep the economy going full tilt. That seems doubtful. Median incomes dropped during the last recovery, adjusted for inflation, and even at the start weren’t much higher than they were in the 1970s. Middle-class families continued to spend at a healthy clip over the last thirty years despite this because women went into paid work, everyone started working longer hours, and then, when these tactics gave out, went deeper and deeper into debt. This indebtedness, in turn, depended on rising home values, which generated hundreds of billions of dollars in home equity loans and refinanced mortgages. But now that the housing bubble has burst, the spending has ended. Families cannot work more hours than they did before, and won’t be able to borrow as much, either."

What does "full tilt" mean? So, yes, people in general should spend less and save more.

"The second assumption is that, even if Americans had the money to keep spending as before, they could do so forever. Yet only the most myopic adherent of free-market capitalism could believe this to be true. The social and environmental costs would soon overwhelm us. Even if climate change were not an imminent threat to the planet, the rest of the world will not allow American consumers to continue to use up a quarter of the planet’s natural resources and generate an even larger share of its toxic wastes and pollutants."

Obviously it would depend upon what they spent the money on. Go Green!

"This would be a problem if most of what we consumed during our big-spending years were bare necessities. But much was just stuff. And surely there are limits to how many furnishings and appliances can be crammed into a home, how many hours can be filled manipulating digital devices, and how much happiness can be wrung out of commercial entertainment."

How many homes have you been in? There are physical limits to how much stuff can fit in a house. Give that problem to an MIT chap. He feels that people spend foolishly, but that's an opinion.

"The current recession is a nightmare for people who have lost their jobs, homes, and savings; and it’s part of a continuing nightmare for the poor. That’s why we have to do all we can to get the economy back on track. But most other Americans are now discovering they can exist surprisingly well buying fewer of the things they never really needed to begin with."

Another up side. Pretty soon we're going to have enough of these "silver lining" discoveries to call this crisis a huge benefit. I doubt that "discovering" is the right term. More like being forced to acknowledge. There's a big difference, which might explain why I find these "silver linings"
to be so annoying.

"What we most lack, or are in danger of losing, are the things we use in common – clean air, clean water, public parks, good schools, and public transportation, as well as social safety nets to catch those of us who fall. Common goods like these don’t necessarily use up scarce resources; often, they conserve and protect them.

Yet they have been declining for many years. Some have been broken up and sold as more expensive private goods, especially for the well-to do – bottled water, private schools, security guards, and health clubs, for example. Others, like clean air, have fallen prey to deregulation. Others have been wacked by budget axes; the current recession is forcing states and locales to axe even more. Still others, such as universal health care and pre-schools, never fully emerged to begin with.

Where does this logic lead? Given the implausibility of consumers being able to return to the same level of personal spending as before, along with the undesirability of our doing so even if we could, and the growing scarcity of common goods, there would seem only one sensible way to restore and maintain aggregate demand. That would be through government expenditure on the commons. Rather than a temporary stimulus, government would permanently fill the gap left by consumers who cannot and should not be expected to resume their old spending ways. This wouldn’t require permanent deficits as long as, once economic growth returns, revenues from a progressive income tax refill the coffers.

My friend the born-again Keynesian might not like where the logic of Keynesianism leads in today’s world, but the rest of us might take heart."

The spending idea seems to entail higher taxes indefinitely. There is no certain relationship between higher taxes and the programs that he wants, as long as we cut expenses elsewhere. The programs that he calls for should be judged on their merits, including whether or not they are worth the cost.

The bottom line is that he wants higher taxes on the rich to pay for more common goods. Why not just say so, and leave Keynes out of it, especially since what he's really being lauded for is having an idea of what to do to increase consumption in a liquidity trap. Hopefully, that won't be our normal condition.