Paul Krugman: Oh, We See Disaster


Oh, We See Disaster, by Paul Krugman, in NY Times: I got my first heads-up of the extent to which austerity fever had taken over the minds of Very Serious People when the OECD, which is conventional wisdom central, went all in for austerity now now now.

The report making that case, the 2010 OECD Economic Outlook, made economic projections out through the last quarter of 2011. For a project I’m working on, I have compared those projections with what actually happened to selected countries; here’s what it looks like:

The harsh-austerity countries did much worse than the OECD was expecting.

This is similar to the IMF’s exercise, which convinced its staff that fiscal multipliers are not just positive — contractionary policy is contractionary — but bigger than they thought. So the OECD was terribly, terribly wrong and gave awful advice. I wonder if they have learned anything from the experience.

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