The Novel Voodoo
Scott Sumner sums up contemporary stimulus proposals well
...Old hydraulic Keynesianism from the 1960s was already a pretty implausible model. But what's happened since 2009 involves non but one, but at to the lowest degree 5 novel types of voodoo:
1. The claim that artificial attempts to forcefulness payoff higher volition boost employment, yesteryear boosting AD.
2. The claim that extended unemployment benefits---paying people non to work---will atomic number 82 to to a greater extent than employment, yesteryear boosting AD.
3. The claim that to a greater extent than authorities spending tin genuinely bring down the budget deficit, yesteryear boosting AD together with growth. Note that inwards the elementary Keynesian model, fifty-fifty amongst no crowding out, monetary offset, etc., this is impossible.
4. More aggregate need volition atomic number 82 to higher productivity. In the former Keynesian model, to a greater extent than AD boosted increase yesteryear increasing employment, non productivity.
5. Fiscal stimulus tin boost AD when non at the nada bound, because . . . ?
In all 5 cases at that spot is close no theoretical or empirical back upward for the novel voodoo claims, together with lots of show against. There were 5 attempts to force payoff higher inwards the 1930s, together with all 5 failed to spur recovery. Job creation sped upward when the extended UI benefits ended at the starting fourth dimension of 2014, reverse to the prediction of Keynesians. The austerity of 2013 failed to irksome growth, reverse to the predictions of Keynesians. Britain had peradventure the biggest budget deficits of whatever major economic scheme during the Great Recession, project increase has been robust, together with withal productivity is forthwith genuinely lower than inwards the fourth quarter of 2007.
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