THE HECK WITH YOUR PALTRY REALITY, I HAVE MY BEAUTIFUL THEORY!:

Economists stymied as reality bears little resemblance to theories (Robert J. Samuelson, 6/26/10 The Washington Post)

[I]n Europe, financial limits have bitten. Greece's huge debt resulted in a steep rise of interest rates. Germany and Britain are debating plans to cut their deficits to avoid Greece's fate.

That's lunacy, writes Martin Wolf, chief economic commentator for the Financial Times. Concerted austerity may destroy the recovery. Exactly, echoes Nobel Prize-winning economist and New York Times columnist Paul Krugman, who argues that the U.S. economy needs more stimulus and bigger deficits. "Penny- pinching at a time like this . . .," he writes, "endangers the nation's future."

Not so, counters Harvard economist Ken Rogoff. President Barack Obama's stimulus package may have "helped calm the panic" in 2009, but boosting spending now raises "the risk of having a debt crisis down the road."

Indeed, some economists believe that budget cutbacks can stimulate economic growth under some circumstances. A study by economists Alberto Alesina and Silvia Ardagna found that budget cutbacks in wealthy countries often had an expansionary effect when spending reductions were emphasized.

Like textbook Keynesianism, "monetarism" has also suffered in its explanatory power. This theory holds that big injections of money into the banking system by the Federal Reserve should lead to higher lending, higher spending and — if large enough — inflation. Well, since the summer of 2008, the Fed has provided about $1 trillion of reserves to banks, and none of these things has happened. Inflation remains tame, and outstanding bank loans have dropped more than $200 billion in the past year. Banks are sitting on massive excess reserves.