Friday, May 17, 2013

More from Krugman on ausrerity

The Smith/Klein/Kalecki Theory of Austerity "And the lineage goes back even further. Two and a half years ago Mike Konczal reminded us of a classic 1943 (!) essay by Michal Kalecki, who suggested that business interests hate Keynesian economics because they fear that it might work — and in so doing mean that politicians would no longer have to abase themselves before businessmen in the name of preserving confidence. This is pretty close to the argument that we must have austerity, because stimulus might remove the incentive for structural reform that, you guessed it, gives businesses the confidence they need before deigning to produce recovery."
Sandwichman responds Wild Things: Question Mark and Austerians. Four years ago Sandwichman said "Sixty-seven years ago, Michal Kalecki nailed it. The economics of full employment is not rocket science. It's the politics, stupid." He is not so sure now "I wonder, though, whether Kalecki went too far or spoke too subtly when he observed that "obstinate ignorance is usually a manifestation of underlying political motives." That might indeed be true when we include as "political" the rather mundane motivation of fitting in with one's colleagues. But I suspect it is misleading if we take "political motives" to refer to some larger purpose. Thus the controversy between the self-proclaimed Keynesians, like Krugman, and the austerians may be a bit of a phony war." I do not quite understand this; perhaps he is suggesting deeper structural reforms ( check also the next paragraph about ' Faustian bargain that settles for half the treasure in return for the whole soul').

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