One lesson that the world has learned since the financial crisis of 2008 is that a contractionary fiscal policy means what it says: contraction. Since 2010, a Europe-wide experiment has conclusively falsified the idea that fiscal contractions are expansionary. August 2011 saw the largest monthly decrease in eurozone industrial production since September 2009, German exports fell sharply in October, and now-casting.com is predicting declines in eurozone GDP for late 2011 and early 2012.
A second, related lesson is that it is difficult to cut nominal wages, and that they are certainly not flexible enough to eliminate unemployment.
Of this, Krugman says:
Basically, European experience is very consistent with a Keynesian view of the world, and radically inconsistent with various anti-Keynesian notions of expansionary austerity and flexible prices. [...]
The crisis really has settled some major issues in economics. Unfortunately, too many people — including many economists — won’t accept the answers.
This is a rather fundamental point. Not just economists, of course, but think-tank ideologues, politicians and general hangers on are awash with notions of how such-and-such will happen if you do such-and-such. The difference between evidence-based theories and hackish ones, however, is the part about being evidence-based. Any decent economist or policymaker will hungrily examine the real world results of their policy implementations and, if necessary, adapt their thinking in line with the evidence. Ideologues, however, will not, and that is the prime definition of a hack: someone whose theories never hold up to real world scrutiny or practice, but who nonetheless still vows in their efficacy because, damn it, it behooves them to do so.
The current fad is to declare that austerity, in the form of slashed budgets, slashed jobs, a slashed tax based and so on will magically produce the opposite of all those things, as wealthy benefactors rush in to spend all the new money you have given them, create jobs creating new products nobody can afford to buy, and, I don't know, start rebuilding infrastructure out of the goodness of their hearts. It is never clear, and nor is it honest: it is predicated on the danger of the Scary Deficit Monster, who was not at all scary during the time he was being fed by these same politicians and think-tank prophets, but who, like any false god, just happens to hate all the same things that his worshippers do.
In this case, the Scary Deficit Monster hates helping unemployed people, hates regulations (regardless of whether or not they save money), hates government in every form save the military, and especially hates it when well-off citizens are asked to pay the same rates they did a few decades ago, back during the dark, nearly apocalyptic 1980s or 1990s. That is damn nuanced policy for a mindless, frothing Deficit Monster, but it is consistent: the Deficit Monster hates anything Democrats might want and just happens to love all the ideas of the Heritage Foundation, etc., etc. And why not? Even a Deficit Monster ought to love its mother.
Europe, meanwhile, caught austerity fever early and with gusto, as O'Rourke says. The experiment was tried. It didn't work. It's still not working, and basic economic theory (of the non-silly variety) pretty much predicted that outcome. A rational approach would be to write the whole thing down in the notebook under stuff we tried that didn't work,and move on to something else. This, however, would require admitting that much-loved economic countertheories about how poor people are leeches, rich people gods, and government powerless saps have been rendered invalid, and at least two-thirds of the political and nine-tenths of the financial industries are devoted to propping up those notions, so that "invalidation" will never happen.
This speaks to the very core of conservative distrust of science. A fundamental of science is that once something has been conclusively disproved, you ought to stop believing in it, and certainly ought to think twice about using it as the foundation for building your own supposedly "scientific" notions. You can believe that if you feed a horse a penny, it will poop out a dime, but once the experiment has been tried and has failed you probably should cancel your plans for a horse-based retirement fund.
This is roughly what has happened in Europe, as every nation that has attempted contractionary polices has found itself faced with, glory be, contraction. Austerity has resulted in austerity and has not magically morphed into expansion via the power of Told You So. We should probably stop expecting the horse to crap out dimes, at this point. We should also probably reflect on what this means for our own "austerity" policies here in this country, but that would require several hundred politicians, thousands of lobbyists, and a hundred thousand ideologues to cop to being proved wrong on something, which will never, ever happen. The mere suggestion is always met with fury. The point is not what reality proves or disproves, the point is the ideology, and if the reality conflicts with the ideology then it is reality that can go to hell.
You'll seldom see this in the hard sciences. Physics, chemistry, biology, fluid mechanics, you name it: everyone is allowed to have a theory that is wrong, but once you start asserting things that people know and have proven to be wrong, you are labeled a crackpot and not taken very seriously after that. If the horse does not poop dimes, it does not poop dimes. If the world is not flat, or the moon is not made of cheese, or your attempts at transmuting lead into gold using nothing more than incantations borrowed from old nursery rhymes did not, in fact, result in gold, then continuing to vow it is true will not get you anywhere. Unless, of course, you work for a group whose funding is predicated on vowing it; then you're all set. Continue on!
The notion of expansionary austerity has been disproven. There's no evidence for it, and quite considerable real-world evidence against it. It is the economic equivalent of Cold Fusion claims, and if economics were treated like a hard science then the practitioners would now be laughed out of the room so that the serious folks could get on with doing more serious work. That, however, will not happen, which is about as discrediting a thing to tar the profession with as I can think of. Economics has long been smirked at as one of the few supposed sciences in which being disproven will not actually diminish your stature. Hell no—get disproven spectacularly enough, and Glenn Beck might even start promoting your books.
On the ideological front, we will keep hearing of magical ponies that are fed pennies and poop dimes; of regulations that, if repealed, will allow financial managers to transmute alcohol into gold during their lunch hours; and of job-creators that will create jobs just for the hell of the thing, whether they have any need for them or not. The Deficit Monster will continue to be very, very scary, and continue to hate all the same things Republicans hate. We will continue to be told that if we lower taxes on rich people, the rest of us will be better off, even after decade after decade of trying that exact goddamn thing to no such effect. It is not a science, it is a damn religion.
I said above that this speaks to the more general conservative distrust of science. For most people, it would be fairer to say that it speaks to a conservative misunderstanding about the whole notion of science. My own hypothesis—and I would be happy to be proven wrong, since it seems easily testable—is that there are a great many people who have difficulty grasping the boundaries between belief and fact, or between supposed and proven. This is why evolution drives them to fits: the Biblical version is presumed to be "fact" because it is in the Bible, case closed; the biological version, however, can never possibly be "proved" to satisfaction because you will never see a monkey with chicken wings, or because eyeballs are terribly complex, or countless other variations. It is an inability to parse out what constitutes evidence, and what does not, and to evaluate the relative strengths. At the extreme end is conspiracy theory.
The movers of policy, however, have no such excuses. If you are claiming expertise on a topic, you had better show some damn expertise, or be discredited. If you are claiming, as Paul Ryan loosely has, that your budget will work because the Magical Budget Fairy will float down and fix all the numbers afterward, you had better be prepared to produce evidence of said Fairy or be proven a hack.
A large segment of American political life is dedicated to the notion that wealthy Americans should be coddled, poor Americans should face austerity, and free-market magic will then fix all. There is certainly motive for rich Americans to make that entirely self-serving claim, and there is certainly a cash motive for lobbyists who work on their behalf to peddle it, and for "think tank" figures to pipe up with whatever bare-bones figures they can possibly come up with to defend it, but it is a tried idea. It failed. It is failing, even now.
Any rational person would now discard those ideas. We, however, are not governed by rational people. We are governed by ideologues, grifters and children.