Economic myths and tall tales - the confidence fairy and bond vigilante

Economic recovery may come about despite fiscal austerity, but never because of it, contrary to what UK chancellor George Osborne claims

In 2011, the Nobel laureate economist Paul Krugman characterised conservative discourse on budget deficits in terms of "bond vigilantes" and the "confidence fairy." Unless governments cut their deficits, the bond vigilantes will put the screws to them by forcing up interest rates. But if they do cut, the "confidence fairy" will reward them by stimulating private spending more than the cuts depress it.

Related: Fiscal virtue and fiscal vice - macroeconomics at a crossroads