Paul Krugman
says that economics had the answer to how to respond to the crisis. It’s just that policy failed to follow the prescription. The textbook said that private demand was deficient, and that what we needed was more public spending to fill the gap.
I don’t think this tells even nearly all the story. The ‘textbook’ just isn’t as unambiguous as PK would have you think. The reasonable and non-partisan economist could take widely differing views on what should be done. And many of these are built on models which are silent about the mechanisms that gave rise to the crisis in the first place. Economics hasn’t properly resolved what caused the crisis nor how best to respond to it. All the big questions are still up for grabs. Into this gap plunged policymakers who had to do something about it without a clear prescription, and were given the…
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