How much deviation from austerity?
The Great Depression wasn’t ended by the intellectual victory of Keynesian economics; in fact the publication of The General Theory was followed by the great mistake of 1937 – when FDR tried to balance the budget too soon and send the U.S. economy into a severe recession.
What put a decisive end to the slump was World War II – which led to deficit spending on a scale that was politically impossible before.
This story is what led me to facetiously suggest that we fake a threat from space aliens, to provide a politically acceptable cover for stimulus.
Now France has been attacked – unfortunately by real terrorists instead of fake aliens and Hollande is declaring that security must take precedence over austerity.
Is this the start of something big?
OK – obligatory disclaimer that will do no good in the face of the stupidity.
I am NOT saying that terrorism is a good thing – just as those of us who point to wartime fiscal stimulus aren’t saying that World War II was a good thing. (Don’t kill baby Hitler — we need him to justify stimulus!)
We’re just trying to think through some side effects of the atrocity.