“But further analysis and experience soon raised doubts about the efficacy of these new tools. Empirical research indicated that the Keynesian multiplier was much smaller than earlier analyses had assumed, reduced by a crowding out of interest-sensitive spending caused by an induced increase in the demand for money and by the effect of the larger national debt on long-term interest rates. The leakage of demand through imports and the effect of the fiscal expansion on the exchange rate further reduced the multiplier.”

— Martin Feldstein

"Rethinking the Role of Fiscal Policy" (2009).

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Martin Feldstein 9

American economist 1939–2019

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“Mundell’s models allowed a significant role for fiscal policy, especially under fixed exchange rates. However, the treatment was entirely Keynesian—an increased budget deficit operated solely by raising the aggregate demand for goods. Moreover, increases in government spending and cuts in taxes had pretty much the same effect on the economy.”

Robert Barro (1944) American classical macroeconomist

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“Central banks have moved to stimulate spending in the face of this attempt to increase savings by lowering interest rates. They lowered them to the zero lower bound without having much effect; the fall in desired savings was too large. We are in a Keynesian liquidity trap. Central banks have tried to stimulate spending by actively increasing the money supply, raising fears of inflation in many circles. But no inflation has resulted as the cash sits idle in corporate coffers. Even at zero interest rates, business firms are reluctant to spend!
What to do? Many pundits say we must simply endure what they call secular stagnation. This is an unhappy prediction. Much better is the Keynesian insight that this is the perfect time for fiscal policy. In the U. S. again, there are immediate needs to repair roads and bridges, rebuild the energy grid, and modernize other means of travel. Keynesian fiscal policy expansion will benefit the economy in both the short and long run.”

Peter Temin (1937) American economist

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“The model retains the uncomfortable property that any increase in demand for home output … leads to nominal and real appreciation… The uncomfortable fact remains that even in this model there is a short-run tendency for an expenditure increase to induce an appreciation… Expansionary fiscal policy will lead to an initial depreciation of the nominal and real exchange rate if … (it) is accommodated by an expansion in nominal money.”

Rudiger Dornbusch (1942–2002) German economist

Source: Open economy macroeconomics, 1980, p. 154-157; as cited by Partha Sen. Fiscal policy, the exchange rate and the current account : a re-examination. ; About the Mundell-Fleming model

“Monetary policy affects the … of goods and assets and (iii) effects through changes in explicit or implicit real interest rates on aggregate demand.”

Rudiger Dornbusch (1942–2002) German economist

Source: Open economy macroeconomics, 1980, p. 71

“The time has come to speak out. Britain is now locked in a vicious spiralling interest rates…The net result of completing the vicious circle is that prices have increased, the rate of inflation has gone up, the money supply has increased, unemployment has gone up, the rate of bankruptcies has increased, the industrial base has been further eroded, the Government's borrowing requirement has increased and as a result there is more pressure to raise interest rates yet again, to be followed inevitably by the same vicious circle. It is this that must be broken.”

Edward Heath (1916–2005) Prime Minister of the United Kingdom (1970–1974)

Speech to the Federation of Conservative Students in Manchester (6 October 1981), quoted in The Times (7 October 1981), p. 6.
Post-Prime Ministerial

“As is often the case with major disputes in economics, the argument over fiscal policy went on for years, with some critics of fiscal policy still defending their position when this book went to press. It seems fair, however, to say that among economists a more or less Keynesian view of the effects of fiscal policy came to prevail. Careful statistical studies at the International Monetary Fund and else where showed that austerity policies have historically been followed by contraction, not expansion. Recent experience, in which countries like Spain and Greece that were forced into severe austerity also experienced severe slumps, seemed to confirm that observation. Furthermore, it was clear that those who had predicted a sharp rise in U. S. interest rates due to budget deficits, leading to conventional crowding out, had been wrong: U. S. long-term interest rates remained near record lows even during the years from 2009 to 2012, when the government ran very large deficits.”

Paul Krugman (1953) American economist

Source: Economics (4th ed., 2015), Chapter 33. Macroeconomics: Events and Ideas

“In figure 3 we show the money and domestic asset market equilibrium schedules for given stocks of each of the assets. Along MM the domestic money market is in equilibrium. Higher interest rates reduce money demand so that equilibrium requires a depreciation and thus a rise in the domestic currency value of foreign assets and - hence wealth. The exchange rate thus plays a balancing role by affecting the valuation of assets.”

Rudiger Dornbusch (1942–2002) German economist

Source: Open economy macroeconomics, 1980, p. 14

“When credit is expanding, the rising price level and high profits bring about a high rate of interest. When the expansion has reached, the limit permitted by the stock of gold, the rate of interest is put still higher in order to bring about a fall in the price level. When the fall in prices takes effect, a low rate of interest becomes appropriate, and when credit contraction has proceeded so far that a redundant supply of gold has accumulated, the rate of interest is depressed still lower in order to bring about a renewed rise in the price level. Thus a high rate of interest corresponds first with rising, then with falling, prices, and so synchronizes with high prices. A low rate of interest corresponds first with falling, and then with rising, prices, and so synchronizes with low prices.”

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“First and foremost, Keynesian economics is a theory of aggregate demand and of the effects of aggregate demand on real output and inflation.”

Alan Blinder (1945) economist

"The fall and rise of Keynesian economics", (1988)

“Sleep is the interest we have to pay on the capital which is called in at death; and the higher the rate of interest and the more regularly it is paid, the further the date of redemption is postponed.”

Arthur Schopenhauer (1788–1860) German philosopher

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