From the article:
The truth is that most of the real knowledge that macroeconomists have
achieved in the past few decades has come at Keynesianism’s expense, by
taking into account that people take the future into account. Krugman
has coined a term which may serve as a concise mnemonic for these
developments — he likes to write about the “confidence fairy.”
Unfortunately, Krugman uses the term to mock
the notion that the weakness of today’s economy has something to do
with expectations for the future. But if we let Marx name “capitalism,”
we may as well take Krugman’s snappy label for rational-expectations
macroeconomics and run with it. Keynesian economics is myopic economics.
It is economics for a world where people get their take-home pay and
immediately spend most of it. It is economics for a world where people
watch the government spending more money and don’t think about how the
government is borrowing to pay for it and will have to raise taxes
sometime to pay down its debts (or at least reduce the deficit). It is
economics for a world where sellers go on mechanically charging the same
prices, rather than cutting prices to get surplus goods out the door.
Confidence-fairy economics recognizes that real people are not myopic.
They think ahead, and that makes the Keynesian models break down.
Source: Nathan Smith, "Calling the Keynesians' Bluff," The American, February 1, 2013
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