Prof. Krugman Snared By 364 Trap

Steve H. Hanke In his New York Times column of September 15, 2014, “How to Get It Wrong,” Paul Krugman pleas for open-mindedness and reason. From whence did Prof. Krugman convert from his embrace of dogmatism? Well, it’s clear that he has not converted. Indeed, the evidence resides about three quarters of the way through his column: “The great majority of policy-oriented economists believe that increasing government spending in a depressed economy creates jobs, and that slashing it destroys jobs — but European leaders and U.S. Republicans decided to believe the handful of economists asserting the opposite. Neither theory nor history justifies panic over current levels of government debt, but politicians decided to panic anyway, citing unvetted (and, it turned out, flawed) research as justification.” This passage brings back vivid memories of the 364. In 1981, Margaret Thatcher was prime minister and my friend and collaborator, the late Sir Alan Walters, was her economic guru. Britain’s fiscal deficit was relatively large, 5.6% of its gross domestic product, and the economy was in the middle of a nasty slump. To restart the economy, Thatcher instituted a fierce fiscal squeeze, coupled with an expansionary monetary policy. This was immediately condemned by 364 dyed-in-the-wool Keynesian economists - virtually all of the British establishment. In a letter to the Times, they wrote, “Present policies will deepen the depression, erode the industrial base ...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs