Paul Krugman continues to apply the lessons of major 20th century British economist John Maynard Keynes to today’s fiscal issues, particularly the insight that it is government’s role to stimulate the economy during times of stagnation. Krugman has consistently called for stimulus over austerity and jobs over deficit cutting. While President Obama's stimulus package was successful, Krugman has correctly argued that it wasn't bold enough. He criticizes the conservative theory that budget cuts lead to economic recovery–a theory that is failing in both the U.S. and Europe:
“The boom, not the slump, is the right time for austerity at the Treasury.” So declared John Maynard Keynes in 1937, even as F.D.R. was about to prove him right by trying to balance the budget too soon, sending the United States economy — which had been steadily recovering up to that point — into a severe recession. Slashing government spending in a depressed economy depresses the economy further; austerity should wait until a strong recovery is well under way.
Unfortunately, in late 2010 and early 2011, politicians and policy makers in much of the Western world believed that they knew better, that we should focus on deficits, not jobs, even though our economies had barely begun to recover from the slump that followed the financial crisis. And by acting on that anti-Keynesian belief, they ended up proving Keynes right all over again.
...the real test of Keynesian economics hasn’t come from the half-hearted efforts of the U.S. federal government to boost the economy, which were largely offset by cuts at the state and local levels. It has, instead, come from European nations like Greece and Ireland that had to impose savage fiscal austerity as a condition for receiving emergency loans — and have suffered Depression-level economic slumps, with real G.D.P. in both countries down by double digits.
...the insistence on immediate spending cuts continued to dominate the political landscape, with malign effects on the U.S. economy...