Preparing for this morning’s class (pdf), I inevitably found myself thinking back to the austerity debate of 2010-2012, which was simultaneously exhilarating and deeply depressing. On one side, the critique of austerity was a classic example of high-quality, relevant economic research done in real time to respond to important issues – and it has left us with much better evidence on the effects of fiscal policy than we had before. On the other side, the nakedness of the way policymakers seized on research telling them what they wanted to hear made you wonder whether economic research can, in fact, actually make a positive difference in the real world.

Before the debate, it was possible to say that we had little evidence for the Keynesian proposition that increases (decreases) changes in government spending and/or deficits lead, other things equal, to short run increases (decreases) in output and employment. The problem was that other things are rarely equal. In fact, the raw correlation goes the other way, because slumps that happen for reasons unrelated to fiscal policy (like housing busts) lead to increased deficits and to some extent increased spending, e.g. on unemployment benefits.

The Alesina/Ardagna work, which purported to correct for these cyclical effects and still show that austerity is expansionary, helped provoke a surge of empirical work, much of it involving the search for natural experiments. And austerity in the euro area itself provided a massive natural experiment.

The result is that we now have overwhelming evidence for the Keynesian proposition, and very strong evidence that when monetary policy can’t lean against fiscal policy – when you either have a fixed exchange rate or are in a liquidity trap – the multiplier is greater than one. The efficacy of fiscal policy in the short run is now as well-established a concept, as grounded in empirical evidence, as the efficacy of monetary policy. (Of course, some people still haven’t gotten that memo either.)

But again, the course of policy – and the relationship of policy to research – was something else. It’s still amazing to look at the eagerness with which policymakers abandoned 60 years’ worth of textbook economics in favor of a radical anti-Keynesian claim that was subjected to intense criticism from the very beginning. As I said, the nakedness of it is just astonishing. People who had no idea what the data or the history looked like, who had no idea of what was involved in attempts to tease out the effect of fiscal policy from the noise, jumped on Alesina/Ardagna as refuting everything anyone else had said on the subject. Were they really unaware that they were committing the sin of letting wishful thinking drive their choices? Did they just not care?

Oh, and of course, nobody except the IMF – which was much closer to being right than other key players – has admitted having been wrong about anything.