Krugman's blog:

[...]

What it doesn’t say explicitly is that in using this procedure, it manages in passing both to refute a very widely held but false belief about deficits and to confirm a highly controversial Keynesian proposition.

The false belief is that government deficits necessarily “crowd out” investment, so that reducing deficits should free up funds that lead to higher investment. Not so, says the IMF: when governments introduce deficit-reduction measures, investment falls instead of rising. This says that the deficits were crowding investment in, not out.

And there’s another way to look at it: when governments introduce austerity measures, they are trying to reduce their net borrowing – in effect, they are raising their savings rate. What the IMF tells us is that such attempts to increase saving actually lead to lower, not higher, investment – and since saving equals investment, actual savings fall. So what we have here is an empirical confirmation of the existence of the paradox of thrift!

Remarkable stuff. Someone tell Wolfgang Schäuble.

Why this is controversial economics is baffling to me. Of course, it's not the economics that's the issue - it's the politics. The powers that be scream about taxes and over-spending, but what they're often really working for is continued pressure on workers' rights and wages. They want cheap labor and a compliant workforce.

:-(

Cheers,
Scott.