Keynes’s biggest test in graph form

I wish I understood macroeconomics better. I took econ 102 so long ago that I only remember a map showing where the various central banks were located. But in the last year and a half I have been trying to get my mind around the different theories behind macroeconomics. I became suspicious of the Austrian school several years ago when reading Stiglitz’s book on the IMF and globalisation. More recently I’ve been getting my knowledge through Krugmann and Planet Money. So, I’m definitely not an authority, but I am convinced at this basic level of Keynesian principles.

Here is a graph that makes me think that I’m right. Paying attention only to the size of the stimuli in the USA, the UK and China, note that the larger percentage of GDP their respective stimuli were, the quicker their recoveries. The UK has had one of the slowest recovering economies in Europe, while the US had some okay numbers last quarter. The Chinese economy has been the strongest in the world for the last year and they had the largest stimulus. The UK had a tiny stimulus, perhaps because they had to spend so much to bail the banks out. Nevertheless, it is strange that China seems to have embraced the theories of Britain’s greatest economist since Adam Smith more than the British did.

On a more sobering note, despite this evidence that the stimulus worked, Krugmann is pretty bearish on the sustainability of this recovery in the U.S.



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