Marginal Revolution: Krugman on Unemployment
Alex Tabarrok writes:
Marginal Revolution: Krugman on Unemployment : Via Brad deLong is Paul Krugman's introduction to the General Theory. Point Three in Krugman's stripped down version is:
3. Government policies to increase demand, by contrast, can reduce unemployment quickly.
Well, that would certainly explain why unemployment recovered so quickly during the Great Depression. Or perhaps, despite the fact that "all it took to get the economy going again was a surprisingly narrow, technical fix," we just weren't trying hard enough.
Yep. This was settled by E. Cary Brown, two generations ago. Roosevelt New Deal fiscal policy was a lot better than Hoover fiscal policy--it wasn't actively contractionary--but it wasn't very expansionary either. World War II fiscal policy, by contrast, was very expansionary indeed--and very successful at pushing unemployment down.