Facts are facts. It is the august and heavyweight IMF that prepared the data in the box. (I am not saying that the IMF agrees with my interpretation.) Moreover, when the flesh and blood of personalities and events are added to the IMF's statistical skeleton, Friedman's derisive attitude towards fiscal policy rings true. The US economy did go into a double-dip recession in 1982, even though it coincided with the first big Reagan tax cuts and a huge widening in the deficit; the Clinton presidency saw the peace dividend that followed the end of the Cold War, with consequent large falls in defence spending and the budget deficit, and yet these were years of strong growth; and George W. Bush may have been a Republican president, but in his first term he indulged in Keynesian reflation which did not stop the bust after the dotcom bubble. There has been a recurrent pattern in which fiscal restraint is associated with-or, at the least, consistent with-positive results for demand and employment.

Something is wrong with the Keynesian textbooks. But what? Why is fiscal policy useless? Several possibilities have been suggested in the literature, the most prominent academic idea being the "Ricardian-equivalence theorem" put forward by the Harvard economist Robert Barro in a celebrated 1974 article. The guts of Barro's argument are that a nation cannot make itself better-off by increasing its public debt. If people are rational and forward-looking, they must allow for the extra taxes required to service any additional debt as well as the boost to their pre-tax incomes from the interest payments to them. Fiscal policy is therefore futile.

Friedman himself tended to highlight a different set of propositions. His emphasis was on the financial side-effects of budget deficits. In his words: "A deficit is not stimulating because it has to be financed, and the negative effects of financing it counterbalance the positive effects, if there are any, on spending." The objection is particularly effective if an increase in the public sector deficit creates strain in the financial markets and pushes up bond yields, which causes a decrease in private sector borrowing and investment. 

However, another line of thought may have been more relevant in the first Obama term, a period in which—speaking bluntly—the fiscal stimulus disappointed its supporters. (Hiscampaign team in the presidential election is reported to have outlawed use of the word "stimulus" because it was invariably met by belly-laughs.) Arguably, the basic flaw in Keynesian fiscalism may have been to overestimate the importance of actions by the state compared with the effects of the private sector's adjustments to changes in the quantity of money. Salient features of the Great Recession have been turbulence in the banking system and marked instability in monetary growth. Whereas the US quantity of money (on the broadly-defined M3 measure) grew at an annual rate in double digits in the three years to mid-2008, it was then unchanged for the three years to mid-2011.

One of my themes in Money in a Free Society was that changes in the quantity of money have powerful impacts on asset prices, notably the values of corporate equity (the stock market), and ofboth residential and commercial property. In the year to the end of 2008, the incipient monetary squeeze caused the net worth of the US household sector to plummet from $66,057 billion to $53,457 billion, or almost 20 per cent. If the value of someone's equity portfolio and real estate assets drops by 20 per cent, it is inconceivable that his or her spending will be unaffected. Suppose that in 2009 American households made an attempt to rebuild assets to the end-2008 level, by increasing their savings by a mere 3 per cent of their end-2008 net worth. Then spending would be slashed in 2009 by $1,600 billion, which is more than 10 per cent of US GDP, anamount that overwhelms any likely fiscal policy changes. 

Whatever the reasons, naive Keynesianism-the Keynesianism of Samuelson's famous textbook, latterly rehashed by Stiglitz, Paul Krugman, Larry Summers and others-has been refuted by the last three decades of American experience. The evidence is that significant reductions in the budget deficit can be reconciled with above-trend growth in demand and output. The US public finances may plunge over the fiscalcliff in 2013, but that will not mean the end of the recovery. The media hullabaloo about the fiscal cliff is disproportionate and unjustified. As long as the banking system is expanding, and the quantity of money is rising steadily, the American economy ought to enjoy steady progress over the coming year.