Qing Dynasty's Keynesian Policy

Perhaps the most extreme example of this government-spending-during-crisis theme (be it Keynesian, Fisher or Koo, each with their own slightly different takes) is the Qing Imperial Granary, which bought up grain in time of good harvests and give them out for free during famine times. It conforms to the basic Keynesian/Koo theme:

• You save up a rainy day fund during good times.
• You don't spend this rainy day fund during normal downturns- just because price of rice went up does not mean you should sell off your grain in the granary (even if it's politically tempting), because all you're going to do is drive some marginal farmers out of business
• In time of a famine you release the grain for free and not quibble about "bailing out" irresponsible people who didn't save enough

From the perspective of the state, there is a purely selfish reason why you want to do this: dead peasants don't have to pay taxes next year. And this is the same idea as weighing the cost/benefit of deficit spending. If you're truly in a balance sheet recession then the budget deficit due from 25% unemployment rate will be worse than the budget deficit due from borrow-and-spend.

This is also why you need to save up during the good time. Even if Greece is currently going through a balance sheet recession, if no one willing to lend to the Greek government, then you don't even have the option of deficit spending.

Because US and Japan are sufficiently big economies and have relatively transparent debt markets, they are able to take on more debt. For example, Greece's debt-to-GDP ratio is about 120%, while bond vigilantes haven't really punished Japan despite its 189% debt-to-GDP ratio.

As an aside, I feel obligated to note that during the mid-2000's, as rating agencies downgraded J-bonds because of this 180+% debt-to-GDP ratio, they were at the same time slapping AAA ratings on subprime mortgage securities where the underlying debt-to-income ratio was sometimes north of 1,000%. Just saying.