And yet over at the New York Times at the beginning of this month we had the Nobel-prize winning Paul Krugman with the opposite description:
"The idea that tight fiscal policy when the economy is depressed actually reduces private investment isn’t just a hypothetical argument: it’s exactly what happened in two important episodes in history.
The first took place in 1937, when Franklin Roosevelt mistakenly heeded the advice of his own era’s deficit worriers. He sharply reduced government spending, among other things cutting the Works Progress Administration in half, and also raised taxes. The result was a severe recession, and a steep fall in private investment.
The second episode took place 60 years later, in Japan. In 1996-97 the Japanese government tried to balance its budget, cutting spending and raising taxes. And again the recession that followed led to a steep fall in private investment."http://www.nytimes.com/2008/12/01/opinion/01krugman.html?_r=1&ref=opinionAh, economics - we may have a little underdetermination of theory by evidence in the house. Speaking a little more seriously, though, it's a little suspicious that the WSJ leaves out these years in particular. And their evidence doesn't seem all that strong. 1994-5 in fact looks pretty good for the Keynesian case, and surely the rise in debt-to-GDP isn't helping their case - isn't the whole point of Keynes that you go into deficit (thereby raising debt) in a recession and then pay it down when times are better?
