There are two ways to think about why North Atlantic economies are depressed. The first is that would-be spenders (including people and businesses that buy durable capital goods) want to spend less than income earners would earn if there were full employment. The second is that would-be lenders want to lend more than would-be borrowers would want to borrow and than financial intermediaries would be willing to let them borrow if there were full employment. These two ways of thinking about it are, in the math, identical. But they highlight different aspects of the situation.
Now comes the very smart Ken Rogoff to say:
Europe’s Lost Keynesians: There is no magic Keynesian bullet for the eurozone’s woes. But the spectacularly muddle-headed argument nowadays that too much austerity is killing Europe is not surprising. Commentators are consumed by politics, flailing away at any available target, while the “anti-austerity” masses apparently believe that there are easy cyclical solutions to tough structural problems.