Take a standard New Keynesian macro model. Assume it sometimes gets stuck in a ZLB liquidity trap, where monetary policy can't work.
There is a very simple solution: use fiscal policy.
Government spending should be cut whenever the economy is not in a liquidity trap. That is the clear policy implication of New Keynesian macroeconomic models.
I am very pleased to see that Canada's Conservative government is currently following that New Keynesian policy recommendation, and is cutting government spending now that the Canadian economy is no longer at the ZLB. All New Keynesians will applaud this sensible policy. Any opposition to this use of fiscal policy must be ideological.
(See, it's all in the framing. Cutting government spending when the economy is not in a liquidity trap (which sounds righty) is equivalent to increasing government spending when the economy is in a liquidity trap (which sounds lefty). Given the standard consumption-Euler equation in simple New Keynesian models, the level of government spending has no effect on the natural rate of interest. (More generally, the effect could go either way, depending on preferences.) It's the rate of change of government spending that affects the natural rate of interest. By reducing the (expected) growth rate of government spending, the natural rate of interest is increased, which helps the economy escape the ZLB. Reducing the (expected) growth rate of government spending sounds righty, but it isn't. A lefty could argue that the best way to reduce the (expected) growth rate of government spending is to increase government spending today to an unsustainably high level, so that people will expect future cuts.)
It's important to ask the right question about fiscal policy. Especially in New Keynesian (and other) models where expectations matter.
New Keynesian models are different from Old Keynesian models. Fiscal policy in Old Keynesian models was about the level of government spending. Fiscal policy in New Keynesian models is about the (expected) rate of change of government spending.
I decided to write this post after reading Mark Thoma's post on Pontus Rendahl. I think there's another way to look at the relation between fiscal policy and ideology. We need to be able to see it both ways.