Tuesday, July 19, 2011

Keynes and the Crisis

Ezra Klein hits all of the right notes on this short article on Keynesianism in the crisis. Go and read now.
[T]he role of the government is to break the cycle. Because businesses and consumers have stopped spending, the government breaks the cycle by spending. As clean as that theory is, it turned out to be a hard sell.

The first problem was conceptual. What Keynes told us to do simply feels wrong to people. “The central irony of financial crises is that they’re caused by too much borrowing, too much confidence and too much spending, and they’re solved by more confidence, more borrowing and more spending,” Summers says.

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