Paul Krugman has a lengthy post-mortem of austerity policies in the New York Review of Books in which he digs into “the urge to dwell on the lurid details of the boom, rather than trying to understand the dynamics of the slump.”
“Economics 101 would seem to say that all the austerity we’ve seen is very premature, that it should wait until the economy is stronger… austerity economics is in a very bad way. Its predictions have proved utterly wrong; its founding academic documents haven’t just lost their canonized status, they’ve become the objects of much ridicule… This raises the obvious question: Why did austerity economics get such a powerful grip on elite opinion in the first place?”
“Pre-Keynesian business cycle theorists loved to dwell on the lurid excesses that take place in good times, while having relatively little to say about exactly why these give rise to bad times or what you should do when they do. Keynes reversed this priority; almost all his focus was on how economies stay depressed, and what can be done to make them less depressed.”
“I’d argue that Keynes was overwhelmingly right in his approach, but there’s no question that it’s an approach many people find deeply unsatisfying as an emotional matter. And so we shouldn’t find it surprising that many popular interpretations of our current troubles return, whether the authors know it or not, to the instinctive, pre-Keynesian style of dwelling on the excesses of the boom rather than on the failures of the slump.”
Felix Salmon: “I think the general view of the public, and of our mainstream elected representatives, is even simpler. These people aren’t economists, and don’t think in terms of cycles; they certainly can’t clearly articulate the difference between a financial crisis and a fiscal crisis… the biggest problem with Keynes is that, just like Ricardo, a lot of what he discovered is deeply counterintuitive. In which case, Krugman’s cyclical arguments are not going to carry the day politically.”