There's a dilemma in policy thinking which doesn't get the attention it deserves - the dilemma of liberal Keynesianism.

It goes like this. On the one hand, one of the better ways of stimulating the economy is to increase public spending. And yet on the other hand, many of us are uneasy about the social, political and cultural effects of big government.

Many people, of course, respond to this dilemma as we do to many problems, by pretending it doesn't exist. The right tie themselves in knots by pretending that shriking the state has quick and large beneficial economic effects, whilst many on the left ignore the costs of big government.

But how should those of us who take the dilemma seriously respond?

One solution is to increase not current spending, but capital spending. This has two virtues. One is that it's not subject to a ratchet effect; once a road is built, you stop spending. The other is that it is less likely to lead to many of the nasty effects of big government, which are the promotion of social norms which breed arrogant and complacent public sector workers, an acceptance of hierarchy and a decline in initiative and self-reliance.

Another solution was described by Keynes. Bigger government, he thought, would actually encourage entrepreneurship because it would improve the odds of it succeeding:

If effective demand is deficient, not only is the public scandal of wasted resources intolerable, but the individual enterpriser who seeks to bring these resources into action is operating with the odds loaded against him. The game of hazard which he plays is furnished with many zeros, so that the players as a whole will lose if they have the energy and hope to deal all the cards. Hitherto the increment of the world's wealth has fallen short of the aggregate of positive individual savings; and the difference has been made up by the losses of those whose courage and initiative have not been supplemented by exceptional skill or unusual good fortune. But if effective demand is adequate, average skill and average good fortune will be enough.

I'm not sure if either of these answers is wholly convincing. Very few people are arguing for a big shift from current to capital public spending. And few entrepreneurs or their lackeys are enthusiastic Keynesians, perhaps for reasons spotted by Michal Kalecki. This suggests either that very few share my unease at the Keynesian dilemma, or - more likely I suspect - that these answers are inadequate.

It is, perhaps, in this context that Labour's fiscal conservatives might be onto something. As Hopi and colleagues wrote:

There are two major imperatives to a centre-left fiscal conservatism: to lock in fiscal sustainability in the long term; and to advance centre-left goals in the context of limited resources through clear priorities and bold reforms.

Unfortunately, it's not at all clear what those "bold reforms" should be, or whether they would work.

I suspect, then, that the liberal Keynesian dilemma is more acute that generally thought, especially at a time when the private sector seems unable to generate economic growth for itself.