Paul Krugman – New York Times
Back in 2010, I had a revelation about just how bad economic policy was about to get; I read the OECD Economic Outlook, which called not just for fiscal austerity but for interest rate hikes ? 350 basis points on the Fed funds rate by the end of 2011! ? because, well, because.
Now, the OECD is calling for fiscal and monetary stimulus in Europe. It?s not the same people; the OECD has a new chief economist, Catherine L. Mann, whose excellent research has always been pragmatic in orientation (and who wrote her dissertation, way back when, under Rudi Dornbusch and yours truly.) But by selecting Ms. Mann the OECD was making a statement, and my sense is that the ground is shifting all around the world.
It has taken a while. In early 2013, with the infamous growth cliff at 90 percent debt and the case for expansionary austerity collapsing, many of us thought we had the austerians on the run. But we underestimated the extent to which officials and, to some extent, the news media had a professional stake in the positions they had staked out over the previous three years, and their willingness to seize on anything ? slight recovery in southern Europe, a pickup in the UK when the government stopped tightening for a while, Latvia ? as supposed vindication of views that were, in reality, overwhelmingly at odds with the evidence.
This still goes on. Simon Wren-Lewis complains, and rightly, about ?mediamacro? ? and his government has learned nothing. The Bundesbank is still what it always was.
But the hawks seem in retreat at the Fed; Mario Draghi (another MIT Ph.D.) sounds an awful lot like Janet Yellen; the whole way we?re discussing Japan is very much on Keynesian turf. Three and a half years ago Businessweek was declaring that expansionary austerian Alberto Alesina was the new Keynes; now it tells us that Keynes is the new Keynes. And we have people like Paul Singer complaining about the ?Krugmanization? of the debate.
Why does the tide finally seem to be turning? Partly, I think, it?s just a matter of time; after six years it?s becoming hard not to notice that the anti-Keynesians have been wrong about everything. Europe?s slide toward deflation makes it even harder to deny the realities of liquidity-trap economics. And the refusal of almost everyone on the anti-Keynesian side to admit any kind of error has gradually made them look ridiculous.
All of this may be coming too little and too late to avoid policy disaster, especially in Europe. But it?s something to cheer, faintly.
November 26, 2014