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The Fairies Have It
Posted By Don Boudreaux On August 2, 2011 @ 5:13 pm In Country Problems,State of Macro,The Economy | Comments Disabled
Here’s a letter to the New York Times:
Paul Krugman’s frequently made case for more government spending rests unapologetically on Keynesian economics. So what are we to make of Mr. Krugman’s advice – offered to counter those who insist that the regulatory, fiscal, and monetary policies of the past few years are diminishing investors’ confidence in the economy – to “Pay no attention to those who invoke the confidence fairy” (“The President Surrenders ,” Aug. 1)?
A key component of Keynesian theory is what Lord Keynes himself famously called “animal spirits” – mysterious phantoms that, although invisible and non-quantifiable, dramatically affect the level of economic activity by messing with investors’ minds.
By advocating a theory that relies heavily on disembodied imps called “animal spirits,” Mr. Krugman has no business denying the existence of “the confidence fairy.”
Donald J. Boudreaux
In fact, I do believe that animal spirits play some role – just as I believe in the “confidence fairy.” (If anything, the “confidence fairy” is a tad more plausible given that she/he/it is alleged to cause responses in predictable and rational ways to regime uncertainty, while animal spirits are just plain irrational.)
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