MISTAH KEYNES, HE DEAD:

An expansionary Budget? (Chris Dillow, 6/15/10, Investors Chronicle)

In 1981 chancellor Geoffrey Howe cut government borrowing to the horror of Keynesian economists, but - to their consternation - the economy subsequently recovered.

This was not an isolated instance. Gabriele Giudice, Alessandro Turrini and Jan in't Veld, three economists at the European Commission, looked at 49 episodes of fiscal tightening in Europe between 1970 and 2002 and found that "roughly half turn out to be expansionary". Denmark, Ireland and Spain in the mid-80s and Italy in the early 90s all cut government borrowing heavily, for example, and found their economies grew quickly thereafter.

"In some cases, fiscal contractions can be expansionary," concluded Alberto Alesina of Harvard University and Roberto Perotti of Milan's Bocconi University in a paper in the 1990s which did so much to undermine the Keynesian orthodoxy.

This was especially likely, they said, if the fiscal tightening consisted more of cutting spending than raising taxes - which is exactly what Mr Osborne has promised to do. In a more recent paper co-authored with Wellesley College's Silvia Ardagna, Mr Alesina has found that "the composition of the fiscal adjustment, more than its size, matters for growth".