Is Fiscal Policy Poised for a Comeback?

Posted: 29 Feb 2008

See all articles by Paul R. Krugman

Paul R. Krugman

Princeton University - Woodrow Wilson School of Public and International Affairs; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: 2005

Abstract

For several decades, discretionary fiscal policy has been in disrepute. Most economists viewed it as unnecessary, because monetary policy was up to the job of stabilizing the economy. Economists also viewed fiscal policy as too clumsy to deal with the relatively short recessions that became the post-war norm. But the experience of Japan and the near-Japan experience of the United States in 2001-3 have renewed some of the old case for fiscal policy. Low-interest environments in which monetary policy becomes ineffective turn out to be a real danger, not a myth. Economic slumps that last for a number of years, offering ample time to implement fiscal expansion, also turn out to be possible. As a result, the case for fiscal policy made by the first generation of Keynesians has experienced a real revival.

Suggested Citation

Krugman, Paul R., Is Fiscal Policy Poised for a Comeback? ( 2005). Oxford Review of Economic Policy, Vol. 21, Issue 4, pp. 515-523, 2005. Available at SSRN: https://ssrn.com/abstract=906415

Paul R. Krugman (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States
609-258-4570 (Phone)
609-258-2809 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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