The confidence fairy history18 June, 2016 at 17:01 | Posted in Economics | 1 Comment
Brad DeLong has an excellent presentation on the history of the confidence fairy up on his blog.
What I especially like with Brad’s history is that it makes it crystal clear how hard it has been for mainstream economists to grasp the simple fact that no matter how much confidence you have in the policies pursued by authorities, it cannot turn bad austerity policies into good job creating policies. Austerity measures and overzealous and simple-minded fixation on monetary measures and inflation, are — almost without exception — not what it takes to get limping economies out of their limbo. They simply do not get us out of the ‘magneto trouble’ — and neither does budget deficit discussions where economists and politicians seem to think that cutting government budgets would help us out of recessions and slumps. Although the ‘credibility’ that mainstream economists talk about arguably has some impact on the economy, the confidence fairy does not create recovery or offset the negative effects of Alessina-like ‘expansionary fiscal austerity.’ In a situation where monetary policies has become more and more decrepit, the solution is not fiscal austerity, but fiscal expansion!