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Notes to myself, possibly of interest to others.
-- Bill Northlich

Wednesday, April 27, 2011

Austerity Not Working As Advertised. Could Keynesians Be -Gasp!- Right?

The bad GDP number for the UK isn’t a surprise — in fact, judging from market response, investors seem to have expected something even worse. ...

Econ 101, buttressed if you like by fancier New Keynesian models, says that contractionary fiscal policy is, well, contractionary. Yet much of the world of movers and shakers [so-called conservatives] bought into the exotic notion that expectational effects — the confidence fairy — would make contractionary policy expansionary. And they clung to this belief even as the supposed historical evidence in favor of expansionary austerity was thoroughly debunked.

---Krugman.  See also op. cit.

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