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The policy classes of the rich democracies know that central banks are near exhaustion, but they retain a touching faith in fiscal stimulus.

The new orthodoxy is that spending à l’outrance can step into the breach without insidious consequences.

What is more enticing than the notion that highly-indebted G7 states can defeat secular stagnation – or the “long-dragging conditions of semi-slump”, as Keynes described the 1930s – by borrowing unlimited sums in perpetuity at near-zero cost? 

Ambrose Evans-Pritchard Telegraph 13 January 2020

The point is not to show that the IMF is a bad forecaster. It is, rather, to illustrate that even teams of very good economists can get forecasts of macroeconomic variables grossly wrong under certain conditions. 

The idea that confidence can be a driver of growth, and that a lack of confidence can throw a country into crisis, played a key role in the origins of macroeconomics. John Maynard Keynes famously wrote about “animal spirits” in chapter 12 of his General Theory.


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