Wednesday, April 25, 2012

Keynes was right and the Austerians are wrong

Via Paul Krugman comes a report from Henry Blodget that a few European leaders have finally figured out: Keynes was right and the Austerians are wrong. And BBC reports that the UK economy has seen real GDP decline for two consecutive quarters. BBC also notes:
Prime Minister David Cameron said the figures were "very, very disappointing". "I don't seek to excuse them, I don't seek to try to explain them away," he said at Prime Minister's Questions. "There is no complacency at all in this government in dealing with what is a very tough situation, which frankly has just got tougher." He said it was "painstaking, difficult" work, but the government would stick with its plans and do "everything we can" to generate growth.
Does he mean sticking to austerity, which likely caused the economic downturn?

4 comments:

Prince_Herb said...

He means that there has not been enough austerity to summon the invisible pink unicorn of confidence and growth, so he will order George Osborne to double the spending cuts once more.

airth10 said...

I am Keynesian. But I can understand the Austrian way of thinking.

Economies like that of Britain find themselves between a rock and a hard place. They don't have the reserves to act Keynesian. Keynes counseled that in good times economies should save for a rain day in order to act like a Keynesian when times get bad. But few economies, if any, have had the will or discipline to save for bad times. So no wonder Britain has backslided into recession.

I am of the felling that stimulating economies out of this recession is not that great an idea. The developed economies have to divest themselves of a lost of surplus and other bad stuff before they can truly right themselves. In the past they recklessly over indulged, for which they are now paying the price. They first have to go through the natural process of slimming down before they can begin to grown. Thus any stimulus at this point is really a wast of money. Unfortunately people will suffer because of past indulgences. But acting Keynesian now will only paper things over. The best thing now is just make people as comfortable as possible.

mischy said...

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Hi. Glad they finally proved that the Austerians were wrong all along. Now get down to business. No use in blaming.

Xenus said...

Cameron appears to still believe in expansionary austerity given his statements. The other possibility is that he's invested so much politically that he can't be seen to change course or admit the policy was wrong. We'll find out which if the government starts to moderate the planned cuts.