Tuesday, April 26, 2011

"Contractionary Policies, It Turns Out, Are Contractionary"

Ireland? Under Austerity, it ain't doing so well. Greece? Under Austerity, also not doing so well.

So, as is usually the case, Krugman called it. He knew that austerity wouldn't work. He predicted austerity wouldn't work. He was razzed for predicting that austerity wouldn't work. But lo and behold...austerity doesn't work.

Which means, as he pointed out, that Keynesian analysis DOES. It may not describe a world as elegant as you see in RBC models. For the world we actually live in, though, it's still the best choice.

1 comment:

  1. The Keynesian Ecomy worked. Even Reagan's OMB David Stocman said
    "Reagan's tax cut was a Trojan horse for trickle down (supply- side). It never ever worked." But it let the rich keep more money.