An empir­i­cal nail in the aus­ter­ity cof­fin

Flattr this!

I was going to write a piece about how Paul Krug­man doesn’t under­stand IS-LM today, but as often hap­pens when I read Krug­man, I find myself agree­ing with him – even if our approaches to eco­nomic analy­sis are very dif­fer­ent.

That hap­pened today as I pre­pared to write my “Krug­man doesn’t under­stand IS-LM” post: I checked his lat­est blog entry “Paul De Grauwe and the Rehn of Ter­ror” and found he’d linked to an excel­lent empir­i­cal paper on how aus­ter­ity poli­cies had func­tioned in Europe – or rather, how they had mal­func­tioned – writ­ten by Paul De Grauwe of the Lon­don School of Eco­nom­ics and Yue­mei Ji of the Uni­ver­sity of Leu­ven. Since politi­cians every­where seem enam­oured of aus­ter­ity right now, this empir­i­cal work deserves wide expo­sure; my the­o­ret­i­cal pot-shot at Krug­man can wait.
Help Kick­starter Min­sky Now!:

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
Bookmark the permalink.
  • gfdgh­fghgf jhgjghjgh

    We still want that piece about IS-LM and Krug­man 🙂

  • Atti­tude_Check

    Steve, Since the total debt of the econ­omy is the prob­lem, if “Aus­ter­ity” is only a bal­anced pri­mary bud­get, with a public/private debt write-off of some form, would that work in your mind. Clearly for the US to con­tinue bor­row­ing $1T+ every year is not going to work, nor is sim­i­lar behav­ior in Europe, espe­cially since the pri­mary pur­pose is avoid­ing recog­ni­tion of already occurred bank loses.

  • Joseph Lord

    Do you fol­low Mar­tin Wolf in the FT? He is also con­cerned about aus­ter­ity and in a recent arti­cle was accept­ing of the con­cept of bank cre­ated money. 

  • It’s coming–next week!

  • Yes, and he’s one of a num­ber of thinkers in the UK who are mov­ing in this direction–Anatole Kalet­sky and Andy Hal­dane being two oth­ers. Good to see.

  • Mich

    I’m not sure what is meant by “aus­ter­ity” these days. From where I’m sit­ting it looks like increas­ing tax/inflation bur­den on the pop­u­la­tion.
    There’s no dif­fer­ence in house­holds and gov­ern­ments, house­holds are capa­ble of legaly coun­ter­feit­ing money (=steal­ing pre­vi­ous worked for sav­ings) by near unlim­ited bor­row­ing, just like gov­ern­ments.
    Eco­nom­ics; Sci­ence of Pyra­mid Schemes, the Knowl­edge of Fraud, the Study of Coun­ter­feitng Tech­nolo­gies.