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Keynesian stimulus versus classical austerity

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  • Laurence Seidman

    (University of Delaware)

Abstract

Keynesians know that if US austerity advocates had received just a few more votes in the November 2008 election, there would have been no fiscal stimulus or financial rescue in 2009 and the Great Recession would have turned into a second great depression. ‘Keynesian’ means recognizing the crucial role of aggregate demand, grasping the paradox of saving, advocating fiscal stimulus (tax cuts as well as government spending) in a recession despite the temporary increase in debt that it generates, and recognizing that monetary stimulus alone is inadequate in a severe recession. Contrary to the claims of austerity advocates, fiscal stimulus in general (and tax cuts in particular) did not fail during the Great Recession, but on the contrary helped avert a depression. The Keynesian multiplier is much larger in recession than in prosperity, but empirical studies often estimate its value in prosperity instead of recession. Keynesians should support austerity in prosperity and stimulus in recession. Unless a second Keynesian revolution is launched and succeeds in persuading both the economics profession and the public, the next severe recession may become a depression.

Suggested Citation

  • Laurence Seidman, 2012. "Keynesian stimulus versus classical austerity," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(0), pages 77-92.
  • Handle: RePEc:elg:rokejn:v:0:y:2012:i:1:p77-92
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    References listed on IDEAS

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    1. Seidman Laurence, 2010. "Reducing Future Deficits While Stimulating Today's Economy," The Economists' Voice, De Gruyter, vol. 7(3), pages 1-5, August.
    2. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
    3. Kenneth Lewis & Laurence Seidman, 2011. "Did the 2008 rebate fail? a response to Taylor and Feldstein," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 34(2), pages 183-204.
    4. Laurence Seidman, 2011. "Great Depression II," Challenge, Taylor & Francis Journals, vol. 54(1), pages 32-53.
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    Cited by:

    1. Laurence Seidman, 2013. "Stimulus Without Debt," Challenge, Taylor & Francis Journals, vol. 56(6), pages 38-59.
    2. João Ferreira do Amaral & João Carlos Lopes, 2015. "The Trade-off Unemployment Rate/External Deficit: Assessing the Economic Adjustment Program of the Troika (European Commission, ECB and IMF) for Portugal using an Input-Output Approach," Working Papers Department of Economics 2015/04, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.

    More about this item

    Keywords

    Keynesian stimulus; classical austerity; Keynesian multiplier; Great RecessionJournal: Review of Keynesian Economics;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian

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