Fiscal Policy Can Help the Economy

For the doubters:

Fiscal Policy Works, by Paul Krugman: Via Brad DeLong, there’s a paper by David Romer (pdf) summarizing recent research on fiscal policy, inspired by the crisis and aftermath. And his conclusion is not at all what you hear on the talk shows; it is that there is now overwhelming evidence that fiscal policy does in fact work when it’s not offset by monetary policy. And since we’re now in a liquidity trap in which conventional monetary policy has no traction, that’s the world we’re in.

And for the austerity minded, stabilization policy works the same in both directions -- expansionary policy is expansionary, and contractionary policy is contractionary.