Krugman also ignores the fact that his own graph shows fiscal policy in Britain getting more contractionary in 2013, and yet growth picked up sharply!
Read the whole thing. I also would note that the demand-side secular stagnation meme also seems to be gone or at least shelved in the cupboard, as today Krugman wrote: “Economies do tend to grow unless they keep being hit by adverse shocks.” The reallocation of labor from previous cuts in government spending is now seen unambiguously a good thing, whereas the previous argument was that in a liquidity trap such positive supply shocks could very well push economies into an even worse position. Most of all, British price inflation has continued at a robust rate and that is because of British monetary policy, again no sign of very low short rates being a “liquidity trap” in this regard. The UK labor market experience also seems to support Bryan Caplan’s repeated claims that real wage cuts really can put people back to work.
And here is a remark on timing:
I find it astonishing that Krugman and Wren-Lewis, having done post after post in 2012 describing how the UK does have real fiscal austerity in 2012, are suddenly happy to now argue that a relaxation of fiscal austerity in 2012 is the “reason” for GDP recovery in… erm, 2013.
Don’t let the emotionally laden talk of “Three Stooges” or “deeply stupid,” or continuing problems in the UK economy, distract your attention from the fact that this one really has not gone in the directions which the Old Keynesians had been predicting.