Bully for the Baltics?, by Paul Krugman, in NY Times: I’ve noted that Tyler Cowen and others seem, mysteriously, to believe that any uptick in Irish GDP somehow refutes Keynesian analysis; I’ve been seeing a lot of similar stuff about the Baltic nations, whose experience is supposed to prove that austerity works.
So, a couple of points. First, it’s remarkable what passes for success in these discussions:
Wow, we’ve trimmed a more than 20 percent decline in GDP to around 15 percent.
But the underlying view here seems to be that Keynesian analysis predicted no recovery at all. So let me pull Menzie Chinn out from behind this sign (actually, he happens to have his slides posted where I can pull them up) to explain what textbook international macro says. Namely, that it predicts a gradual adjustment via internal devaluation that eventually restores full employment even with a fixed rate:
The key word is, of course, “eventually”.
Again, it’s a stunning indictment of the austerian, anti-Keynesian position that those who hold it have to claim Ireland and Latvia as success stories, and have to invent an imaginary version of Keynesian economics to claim that it has failed.