That Old-Time Economics
In Europe, by contrast, policy makers were ready and eager to throw textbook economics out the window in favor of new approaches. The European Commission, headquartered here in Brussels, eagerly seized upon supposed evidence for “expansionary austerity,” rejecting the conventional case for deficit spending in favor of the claim that slashing spending in a depressed economy actually creates jobs, because it boosts confidence. Meanwhile, the European Central Bank took inflation warnings to heart and raised interest rates in 2011 even though unemployment was still very high.
.. If you want to feel really depressed about Europe’s future, read the Op-Ed article by Wolfgang Schäuble, the German finance minister, that was published Wednesday by The Times. It’s a flat-out rejection of everything we know about macroeconomics, of all the insights that European experience these past five years confirms. In Mr. Schäuble’s world, austerity leads to confidence, confidence creates growth, and, if it’s not working for your country, it’s because you’re not doing it right.