Many economists and market participants applauded the Federal Reserve’s decision in September 2012 to make monthly purchases of $85 billion in Treasury and mortgage-backed securities, and hold short-term interest rates at near zero until unemployment fell to 6.5 percent. Now, however, the issue of when to end bond buying is being debated both within and outside the Fed. Some think the central bank isn’t doing enough to deal with the still-fragile economy, while others argue that its actions will result in future price inflation. There is also growing concern that the rapid run-up in prices of stocks and other capital market assets reflects greater risk taking and more leverage and may be signs of yet another bubble.

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In “Political Aspects of Full Employment,” a still widely cited article from 1943, Michal Kalecki raised many questions about the ability of a capitalist economy to maintain prolonged full employment — even though in light of the understanding of tools for stimulating aggregate demand and the use of fiscal policy brought about by the Keynesian ‘revolution.’ In a series of papers, Kalecki showed that the arguments against the use of budget deficits to secure full employment were invalid. Among these arguments, and their rebuttals, were that:

> deficits add to government debt, which is a burden on future generations
(rather, the government debt is bonds owned by individuals, pension funds etc.);

> deficits crowd out investment
(rather, they allow savings to take place and enable investment); and

> deficits cause higher interest rates
(the current situation makes the rebuttal to this clear).

Yet those arguments are still trotted out.

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