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The failure of Austerity
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December 18, 2011, 11:24 AM
Post: #1
News The failure of Austerity
Daily Kos Wrote:Recently Paul Krugman pointed to this piece on Europe's current problems by Kevin O'Rourke:

One lesson that the world has learned since the financial crisis of 2008 is that a contractionary fiscal policy means what it says: contraction. Since 2010, a Europe-wide experiment has conclusively falsified the idea that fiscal contractions are expansionary. August 2011 saw the largest monthly decrease in eurozone industrial production since September 2009, German exports fell sharply in October, and now-casting.com is predicting declines in eurozone GDP for late 2011 and early 2012.

A second, related lesson is that it is difficult to cut nominal wages, and that they are certainly not flexible enough to eliminate unemployment.

Of this, Krugman says:

Basically, European experience is very consistent with a Keynesian view of the world, and radically inconsistent with various anti-Keynesian notions of expansionary austerity and flexible prices. [...]

The crisis really has settled some major issu [...]

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