Simon Wren-Lewis writes “Saying the obvious”:
Give any student who has just done a year of economics some national accounts data for the US, UK and Eurozone, and ask them why the recovery from the Great Recession has been so slow, and they will almost certainly tell you it is because of fiscal austerity. And they would be right, as I set out in this recent VoxEU piece. There I present some back of the envelope calculations, but they are confirmed by model simulations: not just those I quoted in the text, but also others that I did not have space to mention.
When writing that piece, I kept having doubts. Not about the analysis, but just that this was all so obvious. It uses basic models (DSGE or more eclectic) that we teach undergraduates and postgraduates. It is supported by the clear majority of empirical evidence. I felt like I was telling people the macroeconomic equivalent of a rise in the demand for apples will mean an increase in their price.
Maybe his students not mine!
My students have read about Cassel , the economist who in the 1920s and 1930s gave a unified and coherent account, before the fact, of both how an economy could dive into a depression and how it could rise from it. And fiscal policy had nothing to do with it!
In commenting on this SWL post, Stumbling & Mumbling write:” IS DEMOCRATIC KEYNESIANISM POSSIBLE?” It suggests the following “off the charts” conclusion:
In this sense, I read Simon as making a very radical claim – one which is more Marxian than Keynesian. “Democratic” policy-making cannot serve the public interest, because it is subverted by capitalists’ interests. This represents a challenge to naive social democracy, which thinks that governments can do the right thing if only they have the will and courage.