– Krugman’s Adventures in Fairyland (The Ludwig von Mises Institute, Nov 23, 2013):
After studying and teaching Keynesian economics for 30 years, I conclude that the “sophisticated” Keynesians really do believe in magic and fairy dust. Lots of fairy dust. It may seem odd that this Austrian economist refers to fairies, but I got the term from Paul Krugman.
According to Krugman, too many people place false hopes in what he calls the “Confidence Fairy,” a creature created as a retort to economist Robert Higgs’s concept of “regime uncertainty.” Higgs coined that expression in a 1997 paper on the Great Depression in which he claimed that uncertainty caused by the policies of Franklin Roosevelt’s New Deal was a major factor in the Great Depression being so very, very long.
Nonsense, writes Krugman. Investors are not waiting for governments to “get their financial houses in order” and protect private property. Instead, he claims, investors are waiting for governments to spend in order to create enough “aggregate demand” in the economy to bring about new investments and, one hopes, full employment.