Must-Read: Paul Krugman: The Euroskeptic Vindication
Must-Read: The Euroskeptic Vindication: “Conventional Hicks/Keynes macroeconomics–whether or not you dress it up in New Keynesian algebra–has performed very well…:
…Anti-Keynesians keep making more or less desperate efforts to refute this proposition, usually by taking something I said out of context and pretending that something that happened for one year somewhere or other is contrary to what the Evil One claimed. But the overall shape of events has been very Keynesian, and very much at odds with alternative stories.
And at this point I think we need to chalk up another success…. American economists warned about exactly the flaws in the euro that are now the source of so much suffering. Beckworth reminds us of a January 2010 article by Jonung and Drea that has become an accidental classic…. They provided an impressive bibliography and literature review of academic euroskepticism–and in so doing provided us with a sort of honor roll, because all the dire warnings from those ugly Americans came to pass within months of their article’s publication.
So why were the ugly Americans right? Because the theory of optimum currency areas turns out to be basically right. And that theory is best seen, I’d argue, as an application of the same Hicks/Keynes style of analysis that has worked so well on interest, inflation, and austerity. All in all, the past 7 years have been a very good time for old-fashioned macroeconomics. But of course nothing will make the Germans, or the U.S. right, concede that Keynesian ideas have worked.