Keynes, Employment Policy and the Question of Public Debt

This article provides a simple formalization of income-expenditure equilibrium in accordance with the Principle of Effective Demand, but augmented to explicitly incorporate public debt. This is utilized to explore the conditions required for simultaneous achievement of full-employment growth and a sustainable public debt trajectory-the latter understood as stabilization of the ratio of public debt to aggregate income, at some desired level. In the spirit of Keynes's economics, demandled, full-employment growth, driven by government spending, is reconciled with public debt sustainability so understood. The policy implications, illustrative of Keynes's policy views, are then drawn out.