Krugman: Paul De Grauwe and the Rehn of Terror; the incredible unwisdom of European economic policy.
What De Grauwe and Ji show is that the rush to austerity in Europe largely reflected the surge in sovereign debt spreads after Greece got in trouble; the bigger the spread, the harsher the austerity. But it turned out that the spreads didnít reflect underlying fiscal fundamentals.
Meanwhile, all that austerity has taken a terrible toll. De Grauwe and Ji offer us yet another revealing scatterplot, using announced austerity measures in 2011:
But hey, Keynesian economics canít be right, can it? And they also show that countries pursuing austerity have by and large seen their debt positions worsen:
But take heart. Olli Rehn of the European Commission, last heard declaring that the big problem with austerity isnít that it doesnít work, itís the fact that economists keep publishing studies showing that it doesnít work ...