Let’s talk for a second about current events. So much economic policy today both here and especially in Europe, seems like medieval medicine: bleed the patient, and when she gets worse, add more leeches. In other words, “austerity.”
Let me put it very forcefully: No large economy has ever recovered from an economic downturn through austerity. It’s not going to happen in the United States and it’s not going to happen in Europe.
This goes back to what we said yesterday about purposefully unlearning things. We know that mass economic hardship cannot be resolved by imposing additional hardship. But our policymakers are choosing that anyway.