Paul Krugman, though often shrill, nevertheless is an economist who pays attention to the data (see
here). The graph below should make everyone involved in the debate (perhaps, a kind description of what passes for this in America today) think twice about their rigid views regarding fiscal policy.
Krugman says:
The point is that 2010
was a real moment of truth. Were you going to go with the logic of more
or less Keynesian macroeconomic models, or were you going to decide
that loose psychological speculation about confidence trumped the
arithmetic of spending? Being a forthright Keynesian at the time meant
sticking out your neck quite a lot: you were running very much counter
to what the Very Serious People were saying, and you would have been
ridiculed and possibly suffered some serious career damage if US or UK
interest rates had soared the way the VSPs warned, if inflation had
taken off, if the correlation between government spending and GDP had
turned out to be negative instead of positive.
As it turned out,
however, the Keynesian view came out looking very good, and siding with
the VSPs was not a good move after all.
