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The four fallacies of contemporary austerity policies: the lost Keynesian legacy

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  • Robert Boyer
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    Abstract

    The contemporary wide-scale austerity measures are likely to fail in most countries. The first fallacy derives from the false diagnosis that the present crisis is the outcome of lax public spending policy, when it is actually the outcome of a private credit-led speculative boom. The second fallacy assumes the possibility or even the generality of the so-called 'expansionary fiscal contractions': this neglects the short-term negative effects on domestic demand and overestimates the generality of Ricardian equivalence, the importance of 'crowd in' effects related to lower interest rates and the positive impact on trade balances. The third fallacy 'one size fits all' is problematic since Greece and Portugal cannot replicate the hard-won German success. Their productive, institutional and political configurations differ drastically and, thus, they require different policies. The fourth fallacy states that the spill over from one country to another may resuscitate the inefficient and politically risky 'beggar my neighbour' policies from the interwar period. Copyright The Author 2012. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

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    File URL: http://hdl.handle.net/10.1093/cje/ber037
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    Article provided by Oxford University Press in its journal Cambridge Journal of Economics.

    Volume (Year): 36 (2012)
    Issue (Month): 1 ()
    Pages: 283-312

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    Handle: RePEc:oup:cambje:v:36:y:2012:i:1:p:283-312

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    1. Patrick Minford, 2010. "The Banking Crisis: A Rational Interpretation," Political Studies Review, Political Studies Association, vol. 8(1), pages 40-54.
    2. Giovanni Dosi & Giorgio Fagiolo & Andrea Roventini, 2008. "Schumpeter Meeting Keynes: A Policy-Friendly Model of Endogenous Growth and Business Cycles," LEM Papers Series 2008/21, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    3. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
    4. José Gabriel Palma, 2009. "The revenge of the market on the rentiers," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 829-869, July.
    5. Amable, Bruno, 2003. "The Diversity of Modern Capitalism," OUP Catalogue, Oxford University Press, number 9780199261147.
    6. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 1-39, February.
    7. Christopher Adam & David Vines, 2009. "Remaking macroeconomic policy after the global financial crisis: a balance-sheet approach," Oxford Review of Economic Policy, Oxford University Press, vol. 25(4), pages 507-552, Winter.
    8. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
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    Cited by:
    1. Constantinos Alexiou & Joseph G. Nellis, 2013. "Challenging the Raison d’etre of Internal Devaluation in the Context of the Greek Economy," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(6), pages 813-836, December.
    2. Streeck, Wolfgang, 2013. "The politics of public debt: Neoliberalism, capitalist development, and the restructuring of the state," MPIfG Discussion Paper 13/7, Max Planck Institute for the Study of Societies.

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