No One Ever Listens to Krugman


As Europe’s major economies focus on belt-tightening, they are following the path of Ireland. But the once thriving nation is struggling, with no sign of a rapid turnaround in sight.

Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.

“When our public finance situation blew wide open, the dominant consideration was ensuring that there was international investor confidence in Ireland so we could continue to borrow,” said Alan Barrett, chief economist at the Economic and Social Research Institute of Ireland. “A lot of the argument was, ‘Let’s get this over with quickly.’ ”

Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.

An economic disaster brought on in large part by the financial markets will now be perpetuated by the financial markets.

21 replies
  1. 1
    cleek says:

    will now be perpetuated by the financial markets.

    … and their useful idiots, known as the teabaggers.

  2. 2
    Gregory says:

    And when you click over, you’re greeted for an ad for…The Economist. Swell.

    ETA: At least Ireland’s austerity package, according to the second graf, included tax increases. One way to tell the bad faith of the so-called deficit hawks — especially but not exclusively the Republican ones — is that they focus on social spending cuts, not military and perish forbid not increasing taxes to the ruinous rates under Clinton.

  3. 3
    middlewest says:

    Reaganomics enters its next phase, just as planned. The bathtub is ready and waiting.

  4. 4
    Max Power says:

    will now be perpetuated by the financial markets.

    No – it’s the government economists who are enforcing the the austerity. Read Krugman more closely. He makes it clear that the financial markets are punishing austerity and bond rates are going down, which would encourage spending if any governments were able to fight their way out of the orthodoxy. It’s the Greenspans and European finance ministers of the world who want austerity, not the financial markets.

  5. 5
    Michael says:

    Time for a little Boots Riley and Tom Morello.

  6. 6
    Royce says:

    Deregulating commerce is like freeing water from its cup.

    It’s only a good idea if you want to mess things up.

    The idea is to bring ABOUT a worldwide depression, duh. Then the Right can have its World War mulligan. THIS time it will work out Right, the natural rulers will rule and f*ck this whiny self-governance pretense.

    Free Market: Ooopsie, sorry about your little country there … just wait a sec, I’ll clean it up. No! It’s not soaking in, Al Gore is fat is all. There’s a game on, and … oh, okay OKAY, let me get a towel … don’t my shoes look nice? Patent leather, actually. OMG, look at the mess that other guy made! Hurry, hurry, let me fix it before it stains … Nancy Holloway … Well, it wouldn’t have happened if you let ME hold the glass … Tiger Woods … Tiger Woods … Tiger Woods … oh, who made THAT mess? I’LL FIND THE CULPRIT! Where’s my axe?

  7. 7
    MikeBoyScout says:

    A fool and his economic system are soon parted.

  8. 8
    El Cid says:

    This is a very good chance in several decades for governing elites to lead an all out, somewhat vaguely popularly supported (despite polls) ‘deficit’-justified attack on the post-WWII social compact of social welfare and equality benefits for the vast majority in exchange for a stable, albeit controlled capitalism.

    Pr. Krugman, of course, prefers to see it as a grand mistake of irrational thought and ideological orthodoxy, but when elites are taken by ideologies which serve elite policy interests and goals and which guarantee harm to the vast majority, well, it’s not some sort of ideological coincidence.

    It’s class warfare if the elites are happily conspiring to impose pain upon the majority when such pain isn’t necessary, and in which the super-rich will in no way suffer, even if none of them are twirling mustaches over a damsel tied to the railroad tracks.

    It’s like explaining much of the Cold War as “anti-Communist ideology” when ‘by mistake’ many of the U.S. interventions in 3rd world nations had absolutely nothing to do with any external communist ‘threat’ and everything to do with right wing class warfare assholes and their corporate and investor buddies.

    It’s not an accident of mistaken ideology when your mistakes always lead to you pursuing what you want at the expense of others.

    [I should add that I have no idea how successful right wing and center-right policymaking elites will be at dismantling social equality policies, but they have a good model for beginning terminal declines.]

  9. 9
    El Cid says:

    More from the Krug-Man:

    The key thing to bear in mind about calls for harsh austerity in the face of a a depressed economy is that such calls depend on two propositions, not one.
    Not only do you have to believe that the invisible bond vigilantes are about to strike — that you must move to appease markets, even though right now bond buyers are willing to lend money to the United States at very low rates; you must also believe that short-term fiscal cutbacks will in fact appease the markets if they do, in fact, lose confidence.
    That’s why the Irish debacle is so important. All that savage austerity was supposed to bring rewards; the conventional wisdom that this would happen is so strong that one often reads news reports claiming that it has, in fact, happened, that Ireland’s resolve has impressed and reassured the financial markets. But the reality is that nothing of the sort has taken place: virtuous, suffering Ireland is gaining nothing.
    Of course, I know what will happen next: we’ll hear that the Irish just aren’t doing enough, and must do more. If we’ve been bleeding the patient, and he has nonetheless gotten sicker, well, we clearly need to bleed him some more.

    We cannot forget the need to test whether or not Keynesians advocating for increased government investment to replace lost consumption are actually witches or possessed by demons.

    This is because the biggest problem we face right now is the deficit, because of all the inflation, which doesn’t exist and which no one is predicting, but still, shut up.

    This ‘austerity’ and ‘structural adjustment’ shit wrought absolute havoc on national development in Africa and several Asian nations and South America when the IMF and World Bank imposed them in the 1980s and 1990s, and those nations only improved for the citizens when they elected national-development oriented governments who told the austerity mongers to fuck off, that they would develop their own industries and energies and economic resources and build up infrastructure and social development, not follow the Chicago school jackasses who got themselves off on making peasants suffer for Western investor profits.

    This same bullshit was said by Western pseudo-economists on how suffering was advancing those same nations.

    Those same pseudo-economists predicted during the Asian economic crisis of the ’90s caused by rampant speculation and Western-advised deregulation, until the soshullist prime minister of Malaysia, Mahattir Mohammed, said, ‘Enough, fuck you assholes, we’re going to control our currency and stop this shit,’ and despite all the assholes predicting collapse and devastation, Malaysia climbed out faster and more completely than the dupes following the West’s asshole pseudo-economists and foreign policy establishment ideologues.

  10. 10
    bcinaz says:

    How does Stupid have so much power and win so many arguments?

  11. 11
    Hunter Gathers says:

    10 year treasury rates have fallen below 3%.

    That’s quite inflationary. Also.

  12. 12
    El Cid says:

    @bcinaz: “Stupid” often completely coincidentally follows the policy and economic convictions of governing and economic elites. Strange, that.

  13. 13
    Waynski says:

    @bcinaz: Because our media elite are a bunch of retards. Reagan lowered taxes for what? Two years before he raiised them back? At the same time he embarked on a massive military buildup financed by huge deficits, which the idjits in the media somehow have never recognized as a Keynesian stimulus. Thirty years later, they still buy the Republican lie that the tax cuts were responsible for the recovery. Did they help? Probably. Were they the sole cause of the eighties boom? Only a child would think so.

    The Republicans and the media have so poisoned the well of discourse in this country that I don’t know if we’ll ever recover from it. Thirty years ago the media would have treated these tea baggers as the right wing nuts they are and ignored them. Now they’re apparently an important movement that everyone needs to pay attention to, which when you do, adds to power they never should have been granted in the first place. Maybe there will be a rapture and God will call up all the reasonable, thinking people and let moron President Palin take care of all the morons by starting a nuclear war in the middle east.

  14. 14
    El Cid says:

    @Waynski: Reagan kept taxes on the uppermost classes (particularly the super-rich) massively lower, even while closing loopholes and raising corporate taxes.

    And like you say, Republicans exempt any spending they like from deficit causing and they absolutely ignore the revenue side from true, equality-oriented growth and taxes.

  15. 15
    Brian J says:

    There’s a really neat post from Austin Frakt, health economist at Boston University, where he responds to Tyler Cowen’s column in The New York Times and says:

    With a health spending problem like this–government health programs (Medicare+Medicaid) alone projected to gobble up 20% or more of GDP by late in the century–does anything else matter? No, except in political terms. The reason to fight about spending now is because the fight is really about something else (e.g. notions of liberty, ideological signaling, or political positioning). To actually solve the real long term problem requires a focus on health spending. Don’t sweat the rest.

    He also includes a neat graph at the bottom where, after using Dean Baker’s health care calculator, he shows what would happen if we adopted the policies where health care costs were kept in line only to deal with the aging of the population. In other words, this graph shows what would happen if we had policies similar to that of other countries and costs were to stay even with per-capita GDP growth. Or, more simply, it STILL is all about health care.

  16. 16
    Comrade Sock Puppet of the Great Satan says:

    “10 year treasury rates have fallen below 3%.

    That’s quite inflationary. Also. ”

    Fuck. I refi’ed to a 15 year two months ago figuring interest rates were on the rise. Now I’ve gotta either (1) whine to the bank to reduce my rate [worked when my loan was at a credit union, but unlikely to work with the GlobalBank my loan’s now at], or (2) eat another set of fees to save an additional 0.25%/year.

  17. 17
    PeakVT says:

    10 year treasury rates have fallen below 3%.

    Now would be a great time for the US to take out a loan (aka sell bonds) to build a useful thing or two. SUPERTRAINS would be useful, IMHO.

  18. 18
    Evinfuilt says:

    So your idea is to spend easy to finance debt on long term project with long term rewards that can have a huge chain effect on the economy (growth wise) and industry (restarting many parts.)

    That’s crazy commie-talk you got going there. Let me listen to the guy talking about stuffing pure non-hybrid seeds under my mattress will save us from the oncoming apocalypse.

    I’m a bit disappointed that redoing our nations infrastructure (trains, smart-grid, clean water, nuclear/renewable power, roads, bridges, national parks) won’t even be talked about, when its very plainly needed and would have a gigantic stimulus effect through the nation. Heck we could do most of that with a nice cut to our defense spending and ending the war on “some-drugs.” But I’d be more than happy to pay for it with taxes in the decades to come, too many of us are paying too little and getting a crumbling infrastructure in return.

  19. 19
    PeakVT says:

    Heck we could do most of that with a nice cut to our defense spending and ending the war on “some-drugs.”

    I completely agree.

  20. 20
    Sly says:

    An economic disaster brought on in large part by the financial markets will now be perpetuated by the financial markets.

    The European Central Bank, actually. Krugman should have written: The ECB and European governments are implementing the same kind of austerity, on purpose, that the financial markets have done inadvertently.

    Basically he’s saying that the inflation fears of TPTB within the Eurozone will do as much harm, if not more, to economies of their member states (and the Eurozone/World) than the initial crisis. Trichet, the head of the ECB, thinks that the problem right now is fear within the credit markets of debt-related inflation, something that is not backed up by a shred of data. Krugman attributes this to orthodoxy. I’m not sure its that simple.

  21. 21
    Comrade Sock Puppet of the Great Satan says:

    In fairness, the economy of Ireland had to fall given the unrealistic housing-driven growth for the past 5-10 years.

    Both Northern and Southern Ireland had awful economies with high unemployment for decades: this depressed house prices below their equivalent cities/locations in Britain. Peace in the North, and export-driven growth in the South, led to a rapid increase in house prices, which then overshot (way overshot) their true value as expectations adapted to 10+% growth in prices per year – one year housing prices in Northern Ireland went up over 25%.

    Houses in the Ormeau Road in Belfast, less than ten years after vicious sectarian riots over parades there, were selling at almost the same price per square foot as fucking San Francisco. And Belfast was considered cheap relative to Dublin. There had to be a correction, and it was going to be more painful there than here.

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