I’m sorry to say that I’m on the road again, this time at the World Knowledge Forum in Seoul. Here’s a preview of my presentation:
Or, maybe not. Anyway, blogging may be limited. But I did want to weigh in on the just-released first chapter of the new IMF World Economic Outlook (pdf), which contains among things a meditation on multipliers. Basically, the Fund looks at the severity of the downturns in countries practicing severe fiscal austerity and says, gee, maybe fiscal policy has a big impact after all.
OK, I’m being a bit unfair. Olivier Blanchard, the chief economist of the Fund, who co-wrote the relevant box, has always been of the view that fiscal policy has serious impacts. But there was a widespread determination in the immediate aftermath of the financial crisis to dismiss the notion that in a liquidity trap there are large impact of fiscal policy, positive or negative. Those of us who argued that we were now in a very Keynesian world were definitely marginalized in practical policy debates.
But we were right — a fact demonstrated not so much by stimulus as by anti-stimulus, which has had all the negative effects traditional Keynesian macro said it would.
Unfortunately, a large part of the political spectrum remains determined not to learn that lesson.