Sunday, December 18, 2011
This Is A Good Post
Hunter, one of the best writers at Daily Kos, notes that austerity - as tried in Europe - is failing to do what its advocates say it will. By cutting spending in order to balance budgets in a time of declining revenues, Europe has created a contracting economy.
Hunter cites Krugman who notes that this is precisely what basic Keynesian theory says. This theory basically came out of the experience from 1850-1933. During that time, fealty to the gold standard (especially promulgated by the Bank of England) kept money deflated and led to painful depressions and recessions. The occasional gold rush helped, but if you contract the money, you contract the economy.
During the '70s, a combination of rising energy prices and continued Keynesian inflationary theory led to stagflation. So that's a data point against Keynesianism.
But overall, basic Keynesian theory holds true. A little inflation is a good thing. But a little inflation can become a lot of inflation if you're not careful.
So, you know, be careful. But don't throw out the whole idea of Keynesian economics because of the '70s.
I can't say why someone would continue to preach austerity after watching what's happening in Europe, but the GOP continues to hammer this line of thinking.
I suppose it's some combination of American exceptionalism, pig ignorance and desire to make non-rich people suffer.
But, dude. Cut it out.