Should-Read: Simon Wren-Lewis: The academic consensus on austerity solidifies, but policymakers go their own sweet way

Should-Read: Simon Wren-Lewis: The academic consensus on austerity solidifies, but policymakers go their own sweet way: “Any fiscal expansion in the US would not be for Keynesian reasons…

…There remains a clear and rather urgent need for a large increase in public investment financed by borrowing, but that seems unlikely to happen. What we are sure to get is tax cuts….

Not all of the Eurozone’s problems are due to a failure to recognise Keynesian macro…. [But] a failure to understand Keynesian economics contributes to this lack of understanding…. Some key actors, even in EC institutions and governments, are beginning to see how austerity policies may only encourage the rise of the populist right. But that is a long way from the key reform… required… replacing the existing fiscal architecture with something more Keynesian….

Equally disappointing has been the complacency of independent central banks. We have had the most prolonged recovery from recession, with lasting damage to long run supply, but you might be forgiven for thinking that we were still in the Great Moderation. Central banks should be busy comparing the four main ways of avoiding another Zero Lower Bound episode: a higher inflation target, negative nominal rates, nominal GDP targets or helicopter money. They also have to stop being so discreet about fiscal policy. Keeping quiet itself makes another ZLB episode more dangerous…. Occasionally people ask why my blogs seem to be as much about politics as economics these days. I agree…. [But] writing about the finer details of estimated multipliers can seem like rearranging the deckchairs on the Titanic.