While republicans in this election cycle clamor for spending cuts, the tories in the UK have been in power for some time and have actually implemented such demand-killing policies. The result: a double-dip recession in the UK. The financial meltdown has created a huge fall in aggregate demand, and it has long been a basic tenet of economics that the way to cut the damage from a demand deficit is for the central government to step in create demand by stimulus.
Looking at the chart below, which approach do you think produced the better result?
More from Paul Krugman here.
