My latest post on Mises Canada. The money part:
For example, in February 2013 Paul Krugman wrote a piece titled “Sequester of Fools,” in which he referred to the “fiscal doomsday machine” that was being unleashed upon the nation. He claimed that the sequester would cost 700,000 jobs, and justified this number by linking to a Macroeconomic Advisers analysis, which was completely Keynesian in its approach. It said (just as Krugman and the others said, in decrying the sequester) that reduced government spending would reduce economic growth. The Macroeconomic Advisers analysis first made a baseline forecast of U.S. growth without the sequester, then showed what GDP growth would be (broken down by quarter) if the sequester occurred. The bulk of the action occurs in the 2q and 3q of 2013. We are now in a position to compare the Keynesian forecasts to reality (as codified by the Bureau of Economic Analysis):
As the table…shows, we have the mirror image of the stimulus debacle: Actual U.S. GDP growth in both quarters was greater with the sequester than what the Keynesians told us would be the case without the sequester.
But remember, the IS-LM framework has come through this period with flying colors.