Paul Krugman writes:
Henry Blodget says that the economic debate is over; the austerians have lost and whatshisname has won. And it’s definitely true that in sheer intellectual terms, this is looking like an epic rout. The main economic studies that supposedly justified the austerian position have imploded; inflation has stayed low; the bond vigilantes have failed to make an appearance; the actual economic effects of austerity have tracked almost exactly what Keynesians predicted. But will any of this make a difference? […] The cynic in me therefore says that after a brief period of regrouping, the VSPs will be right back at it — they’ll find new studies to put on pedestals, new economists to tell them what they want to hear, and those who got it right will continue to be considered unsound and unserious.I believe that US federal politics is returning to its usual state of deadlock, and there is no more need to make the case for austerity. In some years, due to changing demographics and perhaps emergencies, I expect the balance will shift, but for the moment, I do not anticipate change. The European Union seems to have arrived at a similar state.
There is perhaps something wrong with both US and European federalism. As George F. Kennan observed:
I sometimes wonder whether in this respect a democracy is not uncomfortably similar to one of those prehistoric monsters with a body as long as this room and a brain the size of a pin: he lies there in his comfortable primeval mud and pays little attention to his environment; he is slow to wrath—in fact you practically have to whack his tail off to make him aware that his interests are being disturbed; but, once he grasps this, he lays about him with such blind determination that he not only destroys his adversary but largely wrecks his native habitat. You wonder whether it would not have been wiser for him to have taken a little more interest in what was going on at an earlier date and to have seen whether he could not have prevented some of these situations from arisingAs I have written before, I suspect the long-term outcome is foregone; countries that do not adopt Keynesian policies will be out-competed in world markets. I do not expect these policies, however, to be adopted first in any developed country. Just as emergent capitalism developed most quickly in the USA rather than Europe, I expect emergent Keynesianism will most likely take root in some other place, perhaps Latin America.