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

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  • Robert Boyer

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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  • Robert Boyer, 2012. "The four fallacies of contemporary austerity policies: the lost Keynesian legacy," Cambridge Journal of Economics, Oxford University Press, vol. 36(1), pages 283-312.
  • Handle: RePEc:oup:cambje:v:36:y:2012:i:1:p:283-312
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    File URL: http://hdl.handle.net/10.1093/cje/ber037
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    Cited by:

    1. Botta, Alberto & Tori, Daniele, 2017. "A critique to the expansionary austerity (part III): empirical counter facts beyond theoretical weaknesses," Greenwich Papers in Political Economy 16387, University of Greenwich, Greenwich Political Economy Research Centre.
    2. Robert Boyer, 2013. "The euro crisis: undetected by conventional economics, favoured by nationally focused polity," Cambridge Journal of Economics, Oxford University Press, vol. 37(3), pages 533-569.
    3. Vassilis Monastiriotis, 2014. "(When) Does Austerity Work? On the Conditional Link between Fiscal Austerity and Debt Sustainability," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 8(1), pages 71-92, June.
    4. Sheila C. Dow, 2014. "The role of belief in the debate over austerity policies," Working Papers PKWP1409, Post Keynesian Economics Study Group (PKSG).
    5. 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.
    6. 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.
    7. Engelbert Stockhammer & collin constantine & Severin Reissl, 2016. "Explaining the Euro crisis: Current account imbalances, credit booms and economic policy in different economic paradigms," Working Papers PKWP1617, Post Keynesian Economics Study Group (PKSG).
    8. Alberto Botta & Daniele Tori, 2015. "A critique to the expansionary austerity: Theoretical weaknesses and empirical counter evidence," Working Papers PKWP1511, Post Keynesian Economics Study Group (PKSG).
    9. Andrikopoulos, Andreas & Samitas, Aristeidis & Bekiaris, Michalis, 2014. "Corporate social responsibility reporting in financial institutions: Evidence from Euronext," Research in International Business and Finance, Elsevier, vol. 32(C), pages 27-35.
    10. Alberto Botta, 2016. "The Short- and Long-run Inconsistency of the Expansionary Austerity Theory: A Post-Keynesian/Evolutionist Critique," Economics Working Paper Archive wp_878, Levy Economics Institute.
    11. Fernando Luengo Escalonilla & Lucía Vicent Valverde, 2014. "Encrucijadas de la moneda única: Algunas claves para una reflexión desde la periferia," Policy Papers del Instituto Complutense de Estudios Internacionales 14-01, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.

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