Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
"Expansionary Austerity" is roughly in line with all mainstream approaches, which close their models by assuming that over the long run, if left to its own devices, the economy tends toward a full employment equilibrium.

In that view, "austerity" is just a scary term for leaving the economy to its own devices.

The point of contention is how quickly this entirely fictitious long run, which never appears in any real world long term trends, takes to make its appearance. The New Keynesians can see the short run stretching out for multiple years, and so while their approach points to expansionary austerity "in the long term", it points to actual expansion "in the short term".

Purer mainstream macroeconomic approaches, even more radically divorced from reality than New Keynesian economics, see the long run kicking in more quickly. If it is supposed to kick in on the order of six months or less, that is inside the normal lags for discretionary fiscal policy, and so the thing that discretionary fiscal policy should always be doing is acting as if we were already at that full employment equilibrium.

Sensible real world economic policy advisors, of course, only ever pay attention to the mainstream dogm... errh, approaches when they are useful for rationalizing something that you want to do for some other reason that is less convenient to say than "support employment".

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Nov 2nd, 2011 at 02:40:02 PM EST
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