Paul Krugman: The Macroeconomics of Sisyphus:
Do[ing] policy-relevant macroeconomics these past 5 years has felt like the curse of Sisyphus: you labor mightily to get some simple but essential point across, you think that maybe, finally, you’re getting through. Then along comes some famous economist or report from an influential agency that rolls the level of the discussion right back down to the bottom. The central fact of macro policy in these times is… [that] in normal times, the central bank can offset fiscal contraction by cutting interest rates. Since late 2008, however, the interest rates the Fed can control have been limited by the zero lower bound. This means that there is no offset to the negative effects of fiscal consolidation--which means that this is not the time to be doing such consolidation…. This isn’t complicated, and it isn’t new--it’s what we’ve been saying for almost 5 years. There are arguments one can make on the other side, although the two main ones--expansionary austerity and the supposed existence of a red line on debt at 90 percent of GDP--have imploded.