Austerity Within Reason
By Arnold Kling
This month’s issue of Reason has an article about fiscal tightening moves that did not cause macroeconomic disaster. I discuss the demobilization after World War II. Maurice McTigue discusses New Zealand 25 years ago. David Henderson talks about Canada 15 years ago.
Can one argue that these examples are not relevant today in the U.S.? Certainly. I present some of the arguments in my article. Still, I would say that the biggest iron law of fiscal policy is that We Don’t Know. Some economists have models that tell us what the effects will be, assuming that the models are right. But we don’t know whether or not the models are right.