And yet for some reason Bob Murphy thinks that this graph is proof AGAINST Krugman's concerns!
The post linked above is an excellent demonstration of the gaping chasm that exists between different peoples' interpretation of what's been going on. I sort of wish now I talked more about current events in my class. I talked about the evolution of growth theory and about the Lucas critique on the last two days of class, respectively, but I kind of wish I kept the Lucas critique and spent the other class period talking about the Great Recession and the policy response as they relate to Keynes and Hayek.
As it stands I was very skimpy on policy in the Hayek lecture and in the Keynes lectures. For Keynes we did an overview day, a day on consumption theory, a day on investment theory, and a day on interest rate theory - with some monetary policy discussion coming in on the interest rate theory day and a brief mention of fiscal stimulus on the consumption day when we derived the multiplier. Hayek didn't have any direct policy talk.
Perhaps this was a mistake.
This graph screams austerity but for some reason people are caught up on the fact that it did not actually decrease and ignoring the fact that the last five years look very, very different from the preceding fifty.