Monday, October 17, 2011

Krugman on European "Fantasy Economics"

Paul Krugman, lucid as always:

That said, I think Munchau is being too kind here. European leaders and institutions by and large didn’t even get to the point of devising policies that might have worked in a small open economy. Instead, they went in for fantasy economics, believing that the confidence fairy would make fiscal contraction expansionary. The ECB, which Munchau credits as the institution most aware of the linkages, was also the institution most dedicated to the doctrine of expansionary austerity.

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