Where does the buck stop?
Fiscal stimulus, an idea championed by John Maynard Keynes, has gone in and out of fashion.
At the height of the euro crisis, with government-bond yields soaring in several southern European countries and defaults looming, the European Central Bank and the healthier members of the currency club fended off disaster by offering bail-outs.
But these came with conditions, most notably strict fiscal discipline, intended to put government finances back on a sustainable footing.
Some economists argued that painful budget cuts were an unfortunate necessity.
Others said that the cuts might well prove counterproductive, by lowering growth and therefore government revenues, leaving the affected countries even poorer and more indebted.
In 2013 economists at the IMF rendered their verdict on these austerity programmes: they had done far more economic damage than had been initially predicted, including by the fund itself.
What had the IMF got wrong when it made its earlier, more sanguine forecasts?
It had dramatically underestimated the fiscal multiplier.
The multiplier is a simple, powerful and hotly debated idea.
It is a critical element of Keynesian macroeconomics.
Over the past 80 years the significance it has been accorded has fluctuated wildly.
It was once seen as a matter of fundamental importance, then as a discredited notion.
It is now back in vogue again.
The idea of the multiplier emerged from the intense argument over how to respond to the Depression.
In the 1920s Britain had sunk into an economic slump.
The first world war had left prices higher and the pound weaker.
The government was nonetheless determined to restore the pound to its pre-war value.
In doing so, it kept monetary policy too tight, initiating a spell of prolonged deflation and economic weakness.
The economists of the day debated what might be done to improve conditions for suffering workers.
Among the suggestions was a programme of public investment which, some thought, would put unemployed Britons to work.
The British government would countenance no such thing.
It espoused the conventional wisdom of the day—what is often called the “Treasury view”.
It believed that public spending, financed through borrowing, would not boost overall economic activity, because the supply of savings in the economy available for borrowing is fixed.
If the government commandeered capital to build new roads, for instance, it would simply be depriving private firms of the same amount of money.
Higher spending and employment in one part of the economy would come at the expense of lower spending and employment in another.
As the world slipped into depression, however, and Britain's economic crisis deepened, the voices questioning this view grew louder.
In 1931 Baron Kahn, a British economist, published a paper espousing an alternative theory: that public spending would yield both the primary boost from the direct spending, but also “beneficial repercussions”.
If road-building, for instance, took workers off the dole and led them to increase their own spending, he argued, then there might be a sustained rise in total employment as a result.
Kahn's paper was in line with the thinking of John Maynard Keynes, the leading British economist of the day, who was working on what would become his masterpiece, “The General Theory of Employment, Interest and Money”.
In it, Keynes gave a much more complete account of how the multiplier might work, and how it might enable a government to drag a slumping economy back to health.
Keynes was a singular character, and one of the great thinkers of the 20th century.
He looked every inch a patrician figure, with his tweed suits and walrus moustache.
Yet he was also a free spirit by the standards of the day, associating with the artists and writers of the Bloomsbury Group, whose members included Virginia Woolf and E.M.Forster.