Afternoon Must-Read: Anne Laurie: Monday While-We’re-Waiting
Afternoon Must-Read: Martin Wolf: Radical Cures for Unusual Economic Ills

Afternoon Must-Read: Paul Krugman: Keynes Is Slowly Winning

Paul Krugman: Keynes Is Slowly Winning: "Back in 2010... I read the OECD Economic Outlook...

...which called not just for fiscal austerity but for interest rate hikes--350 basis points on the Fed funds rate by the end of 2011!--because, well, because. Now the OECD is calling for fiscal and monetary stimulus.... It’s not the same people.... A new chief economist, Catherine L. Mann, whose excellent research has always been pragmatic.... But by selecting Ms. Mann the OECD was making a statement, and my sense is that the ground is shifting.... It has taken a while. In early 2013, with the infamous growth cliff at 90 percent debt and the case for expansionary austerity collapsing, many of us thought we had the austerians on the run. But we underestimated the extent to which officials and, to some extent, the news media had a professional stake in the positions they had staked out.... This still goes on. Simon Wren-Lewis complains, and rightly, about ‘mediamacro’--and his government has learned nothing. The Bundesbank is still what it always was.

But the hawks seem in retreat at the Fed; Mario Draghi... sounds an awful lot like Janet Yellen; the whole way we’re discussing Japan is very much on Keynesian turf.... Businessweek was declaring that expansionary austerian Alberto Alesina was the new Keynes; now... Keynes is the new Keynes... Paul Singer complaining about the ‘Krugmanization’ of the debate.... Partly, I think, it’s just a matter of time.... The refusal of almost everyone on the anti-Keynesian side to admit any kind of error has gradually made them look ridiculous. All of this may be coming too little and too late to avoid policy disaster.... But it’s something to cheer, faintly..."

I find myself much less optimistic. When I look back on it, I find that there are and were no reasons--not a single coherent theoretical reason, not a single not inaccurate empirical reason--to believe any of:

  1. Fiscal policy would be ineffective at the zero lower bound.
  2. Austerity would be expansionary.
  3. The retarding effects of debt on growth had some sort of a cliff at a debt-to-annual-GDP ratio of 90%.
  4. Increased debt could have any adverse effects on economies that issued reserve currencies and had low interest rates.

Economics as a system of knowledge has had remarkably little impact on either economic policy or on the character of the public debate since 2009.