Dummies like me. I favor primers:
1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a handsoff policy toward depressed economies means accepting a long, unnecessary period of pain.
3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.
4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
... implications for the world we’ve been living in since 2008 seem very clear: aggressive monetary expansion, plus fiscal stimulus as long as the zero lower bound constrains monetary policy. But ... we see the following bogus claims:
B1: Any economic recovery, no matter how slow and how delayed, proves Keynesian economics wrong. See [2] above for why that’s illiterate.
B2: Keynesians believe that printing money solves all problems. See [3]: Printing money can solve one specific problem, an economy operating far below capacity. Nobody said that it can conjure up higher productivity, or cure the common cold.
B3: Keynesians always favor deficit spending, under all conditions. See [4]: The case for fiscal stimulus is quite restrictive, requiring both a depressed economy and severe limits to monetary policy. That just happens to be the world we’ve been living in lately.(
http://krugman.blogs.nytimes.com/2015/09/15/keynesianism-explained/)
Comments
If his position is so strong he should be easily able to point out where his ideas worked in the past? He doesn't why?
Instead, he introduces his excuse for it not working. "4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses."
In short, half of what he wrote doesn't explain anything and the other half is a straw man.
http://www.investopedia.com/video/play/keynesian-economics/?rp=i
The main reason K theory does not work in practice is because governments only implement the first half - the downturn part, government spending, gov't programs, gov't debt. It does not reverse these things in good time.
That is the difference between theory and practice.
Also, K theory was thought up in the times prior to the current world economy. Gov't spending to stimulate the national economy loses its effectiveness because a large part of the stimulus flows outside the nation state.
Me with this thread:
Apologies, and yeah, an old and tiresome, oh so tiresome, response. No more PSAs.
It's funny, whether you like the guy or not (personal style etc., although he doesn't rub me the wrong way), all you have to do is read a lot of Krug and you can find out data and examples for all questions.
Meh.