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The Global Economy: Battle lost; austerity won
When reality contradicts facts, reality is redefined.
to read Antonio Fatas on the Global Economy published on December 5, 2013, click on
Battle lost: austerity won.
It has been surprising to see how over the last five years some have been holding to their economic theories even if the facts kept proving them wrong (Yyperinflation? Confidence and austerity?). At the end, it seems that ideology dominates much of the macroeconomic analysis we see these days. But what is more surprising is how broad this phenomenon is and how the general economic commentary that one reads in the press cannot move away from those theories either.
One statement that will not go away is the constant reference to "printing money" which is not only incorrect from a factual point of view (most of the increase in the monetary base corresponds to reserves not to bank notes being printed) but also misleading when it comes to the understanding of the role of central banks. Even those who support central bank actions during the crisis have to add a sentence at the end to warn us about the danger of so much liquidity.
And austerity, as much as the data has disproven the claim that it would be through reduction in government spending and increased confidence that advanced economies will return to healthy growth rates, it does not seem to lose its appeal either.