Thursday, January 8, 2015

Krugman brings the data

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.