We Can Now Put Austerity And The Confidence Fairy To Bed

Paul Krugman declared victory over those in the US and Europe who argued that fiscal austerity was the best medicine for fighting against recession. The evidence is in and the confidence fairy failed to show up. Fiscal austerity is contractionary in a recession. The international love affair with austerity, primarily by conservative politicians, and conservative economists, flew in the face of the lessons that we learned in the Great Depression. Instead of fixing the economy, politicians decided that they could use budget deficits as the rationale for attacking social programs that they never liked. Economists, especially those connected to the University of Chicago, saw it as another opportunity to win their battle against the use of fiscal policy to moderate the business cycle. Their confidence fairy assumes that the business cycle is self correcting. We have learned a valuable lesson from this disaster. It is very difficult to separate economics from politics. Those who claim that economics is a positive science, devoid of political considerations, have discovered that the most vocal proponents of positive science have been the worst offenders.