Austerity Economics Doesn’t Work: We're All Keynesians Now

Today, Duncan Black/Atrios/Eschaton observed:

We're All Keynesians Now: All the "fiscal cliff" nonsense is just acknowledging that contractionary policy is contractionary. That all the serious people have been advocating contractionary policy for years seems to have been lost. Maybe we take the next step and learn that expansionary policy is expansionary.

That's a pretty good introduction to this post from John Cassidy:

It’s Official: Austerity Economics Doesn’t Work, by John Cassidy: With all the theatrics going on in Washington, you might well have missed the most important political and economic news of the week: an official confirmation from the United Kingdom that austerity policies don’t work. ...

One of the frustrations of economics is that it is hard to carry out scientific experiments and prove things beyond reasonable doubt. But  ... what has been happening in Britain amounts to a “natural experiment” to test the efficacy of austerity economics. ...

That austerity has led to recession is undeniable. ... If all the pain he has inflicted had transformed Britain’s fiscal position, his policies could perhaps be defended. But that hasn’t happened. ...

For the purposes of the natural experiment, the U.S. can be thought of as the control. In adopting a fiscal stimulus of gradually declining magnitude over the past four years, the Obama Administration has administered what was, until recently, the standard medicine for a sick economy. As one would have expected on the basis of the textbooks, the American economy, while hardly racing ahead, has fared considerably better than its British counterpart. ...

Let’s go over that one more time. Having adopted the policies of Keynes in response to a calamitous recession, the United States has grown more than twice as fast during the past three years as Britain, which adopted the economics of Hoover (and Paul Ryan). Meanwhile, the gaping hole in the two countries’ budgets has declined at roughly the same rate, and next year the U.S. will be in better fiscal shape than its old ally.

Q.E.D.