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Real-World Economics Review

Debt, deficits, secular stagnation and the which way is up problem in economics

from Dean Baker The economy can have a problem of too much demand, leading to serious inflationary pressures. It can also have a problem of too little demand, leading to slow growth and unemployment. But can it have both at the same time? Apparently, the leading lights in economic policy circles seem to think so. As I noted a few days ago, back in the 1990s and 00s economists were almost universally warning of the bad effects of an aging population. The issue was that we would have too...

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How not to deal with a debt crisis

In the 1920s and early 30s, John Maynard Keynes was embroiled in a controversy with the ‘austerians’ of his time, who believed that balancing the government budget, even in a time of economic volatility and decline and financial fragility, was necessary to restore ‘investor confidence’ and therefore provide stability. Keynes was horrified by the idea. Zachary Carter’s brilliant biography notes that Keynes felt a package of government spending cuts and tax increases would be ‘both futile...

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Econometric testing

from Lars Syll Debating econometrics and its shortcomings yours truly often gets the response from econometricians that “ok, maybe econometrics isn’t perfect, but you have to admit that it is a great technique for empirical testing of economic hypotheses.” But is econometrics — really — such a great testing instrument? Econometrics is supposed to be able to test economic theories. But to serve as a testing device you have to make many assumptions, many of which themselves cannot be tested...

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