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Every Consensus Must End

Written by Simon Johnson in the Baseline Scenario

February 16, 2009 at 9:30 am

The prevailing consensus on any economic policy is a fascinating beast.  For years it can stay put, seemingly immovable, and even – in some cases – becoming enshrined in legislation or central bank statute.  One day it begins to shake, ever so slightly; under the pressure of events, a wider range of serious opinion develops.  And then, all of a sudden, the consensus breaks and you are running hard to keep up. We saw this last year with regard to discretionary fiscal policy – fiscal stimulus – in the US.  Eighteen months ago, very few mainstream economists or other policy analysts would have suggested that the US respond to the threat of recession with a large spending increase/tax cut.  The consensus – based on long years of experience and research – was that discretionary fiscal policy generates as many problems as it solves.  To argue against this consensus was to bang your head against a brick wall, while also being regarded as not completely serious.

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