The particular synthesis of economic principles espoused on this site are not mine. They are those of the Nobel-price-winning economist, Paul Krugman, and a number of other heavy-weight economists who have reached the same conclusions. I do not agree with all of Krugman’s politics. But his economic analysis of the current downturn has passed enough tests to persuade any fair-minded person that he has been right about the causes and cure for the current crisis.
One of the best ways to distinguish between “correct economics” and “incorrect economics” is to compare how well each model predicts the future. Krugman’s view, which I’ve summarized here, here and here, has matched reality to a remarkable degree. On his blog this morning, Krugman compares his key predictions to those of his conservative critics who have been advocating austerity. Bottom line: Krugman’s been right, and they’ve been wrong, about, well, everything, for three years. Remarkable.
UPDATE: He’s also been right in predicting: (i) that commodity prices surges were due to temporary factors and did not foreshadow a secular inflationary trend (see, e.g., here, here, and here) and (ii) that the recovery would be so close to jobless that it would feel like no recovery at all (see here and here).
Note: Search this blog for “Krugman and predictions” for other posts.