One thing you encounter a lot in Europe these days are assertions that the “success” of Spain and Portugal proves that the critics of austerity were all wrong. To make this sort of claim, however, you have to do two things. First, you need to define success way, way down. Second, you have to willfully misread what Keynesians have been saying from the beginning about about the process of internal devaluation.

Let’s look at what passes for success in Spain, which has, somewhat incredibly, been elevated as a role model:

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We see an awesome slump that leaves Spain far below its pre-crisis level of output, and even further below its pre-crisis trend, followed by an upturn that, even if it continues at the current pace, will take many years to recover the lost ground. This is a vindication of policy?

But isn’t any kind of recovery a refutation of what people like me have been saying? Sigh. Here’s what I wrote three years ago, drawing on standard international macro theory:

So over time gradual deflation (or deflation relative to trading partners) increases competitiveness, leading to recovery toward full employment; this implies a period of above-normal growth and, implicitly, above normal growth in exports as well. So if you see these things it isn’t a refutation of the approach, it’s actually what the model predicts. The point, however, is that it may take a long time — and there’s massive pain along the way.

This is exactly the point Milton Friedman was making in his case for flexible exchange rates:

[U]nemployment produces steady downward pressure on prices and wages, and the adjustment will not have been completed until the deflation has run its sorry course.

If you ask me, it’s telling that defenders of current policies and attackers of their critics have to invent false claims the critics never made.