Alesina and the Keynesians: Austerity and Say’s Law

Steven Kates ()

Atlantic Economic Journal, 2012, vol. 40, issue 4, 415 pages

Abstract: Alberto Alesina’s empirical work has led to re-examination of Keynesian theory and policy. His demonstration that reductions in public spending are often followed by improvements in economic conditions is a direct contradiction of modern macroeconomic theory, where increases in aggregate demand are seen as the most important precondition for recovery even where such increases in demand are unproductive in themselves and largely wasteful. The present paper suggests that the theoretical framework necessary to understand Alesina’s empirical results is embedded within the classical theory of the cycle which argues that only value adding production could lead to recovery. Most importantly, the paper argues that only through a correct understanding of Say’s Law of markets can Alesina’s empirical results be properly understood. Copyright International Atlantic Economic Society 2012

Keywords: Keynesian economics, Say’s Law, Classical theory of the cycle, Economic policy, Austerity, Alberto Alesina, 2: B00 Methodology; History of Thought, 10: E00 Macroeconomic Theory, 12: E30 Business Cycles, 16: E62 Fiscal Policy; Public Finance, (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s11293-012-9330-6

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