European Austerity Is Working? O R’yleh?

The Elder Keynesian Krugthulu arises from the depths of Lost Decade, shrill but dreaming, not to bring madness, but to end it!  Ia! Ia ftaghn stimulus!

Last week the European Commission confirmed what everyone suspected: the economies it surveys are shrinking, not growing. It’s not an official recession yet, but the only real question is how deep the downturn will be.

And this downturn is hitting nations that have never recovered from the last recession. For all America’s troubles, its gross domestic product has finally surpassed its pre-crisis peak; Europe’s has not. And some nations are suffering Great Depression-level pain: Greece and Ireland have had double-digit declines in output, Spain has 23 percent unemployment, Britain’s slump has now gone on longer than its slump in the 1930s.

Worse yet, European leaders — and quite a few influential players here — are still wedded to the economic doctrine responsible for this disaster.

For things didn’t have to be this bad. Greece would have been in deep trouble no matter what policy decisions were taken, and the same is true, to a lesser extent, of other nations around Europe’s periphery. But matters were made far worse than necessary by the way Europe’s leaders, and more broadly its policy elite, substituted moralizing for analysis, fantasies for the lessons of history.

Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.

Now the results are in — and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending.

Just as the financial crisis, the housing depression, and the Great Recession should have doomed Laffernomics and the notion that tax cuts cause growth through, you know, bloody reams of empirical evidence, so should the notion of austerity as a solution to the problem be laughed out of this universe and every other.  Of course, austerity was never the “solution” to the problem of the 2008 crash, it’s the “solution” to the New Deal and the decades of classic liberalism that followed.  Republicans want to “solve” it.  The stimulus was too small to fix the problem fully, but it certainly saved our asses.  The GOP says “we’re on the path to Greece!”  We would be on the path to Greece now under them, and that’s what they want.  Makes it so much easier to cut, cut, cut.

And so to the Mountains of Economic Madness the Austerians head, hoping to take all of us with them for “shared sacrifice”.  But Mighty Krugthulu knows the way through…

The point is that we could actually do a lot to help our economies simply by reversing the destructive austerity of the last two years. That’s true even in America, which has avoided full-fledged austerity at the federal level but has seen big spending and employment cuts at the state and local level. Remember all the fuss about whether there were enough “shovel ready” projects to make large-scale stimulus feasible? Well, never mind: all the federal government needs to do to give the economy a big boost is provide aid to lower-level governments, allowing these governments to rehire the hundreds of thousands of schoolteachers they have laid off and restart the building and maintenance projects they have canceled.

Look, I understand why influential people are reluctant to admit that policy ideas they thought reflected deep wisdom actually amounted to utter, destructive folly. But it’s time to put delusional beliefs about the virtues of austerity in a depressed economy behind us.

The evidence against austerity keeps piling up, but of course austerity for the 99% to benefit the 1% is the point in and of itself, and it always has been.  That’s the abyss they want to throw us into.

Madness, indeed.

Share On Facebook
Share On Twitter
Share On Google Plus
Share On Pinterest
Share On Reddit

66 replies
  1. 1
    Mino says:

    Obama has been pretty good at getting surreptitious stimulus out the door, too.

  2. 2
    Johannes says:

    Ia! Ia! Indeed. Oh, and there’s a Thing on the Doorstep, oozing Santorum.

  3. 3
    Egg Berry says:

    Austerity economics won’t change until the economists who pimp austerity are the ones who lose their livelihoods.

  4. 4
    Culture of Truth says:

    MORE Austerity!

  5. 5
    Villago Delenda Est says:

    What happens to the 99% is irrelevant.

  6. 6
    c u n d gulag says:

    But it’s SOOOOOOO much dang fun to inflict pain and suffering in others!

    I have a “Reverse Pain Plan:”
    Rich person – meet rope.
    Intestines – meet knife.
    Limbs – meet chains.
    Chains – meet luxury car bumpers.
    “Start your engines!”
    “GO!”
    Head – meet blade.
    Disembodied Head – meet pike.

    SIMPLE!

  7. 7
    Villago Delenda Est says:

    @Egg Berry:

    Austerity economics won’t change until the economists politicians who pimp austerity are the ones who lose their livelihoods.

    Amended a bit.

  8. 8
    sb says:

    Of course, austerity was never the “solution” to the problem of the 2008 crash, it’s the “solution” to the New Deal and the decades of classic liberalism that followed. Republicans want to “solve” it.

    This.

    I’ll go to my grave thinking the Repugs pushed all of their bullshit because they’re either stupid or evil or both.

  9. 9
    Mino says:

    If the Germans don’t watch out, the Greeks are gonna burn the Parthenon before they’re fprced to sell it. And what’s Germany gonna do, send in the troops? I don’t see this ending well.

  10. 10
    MattF says:

    Krugman’s fatal problem is that he’s been right about too many things. The people he’s made a fool of will never forgive him, and the (dwindling) number he hasn’t made a fool of yet are circling the wagons.

  11. 11
    Another Halocene Human says:

    A lot of the 1% will be falling off that cliff with the 99%, yet they all think they alone will be King of the Mountain.

  12. 12
    Lee says:

    …bloody reams of empirical evidence…

    Here is the thing. Austrian economics eschews empirical evidence. Meaning they just get to make shit up and call it ‘true’. So any data you might have to contradict their voodoo they just dismiss.

    Now I know why Bush Sr called it ‘voodoo economics’. Instead of men in robes standing around a fit pit coming up with data free mystical mumbo-jumbo you have men in suits sitting around a table coming up with data free mystical mumbo-jumbo.

  13. 13
    Gwiwer says:

    I… I just… I really don’t understand. During the Clinton years, when the economy was doing alright and everything was going fairly well, the Republicans were screeching and screaming that we needed to slash taxes and regulations for the rich and spending for the poor and middle-class or else we would all be doomed. They eventually got their way under Bush and the economy took a massive nose dive. They then reacted to that by screeching and screaming that we need to slash taxes and regulations for the rich and spending for the poor and middle-class or else we will all be doomed. How the hell could anyone at this point not realize their intentions of using any excuse to loot the economy and the country on behalf of themselves and their ultra-rich friends? It’s blatantly obvious to anyone who hasn’t been in a coma since the 1970’s. I mean, they don’t even make any attempt at hiding it. I just don’t understand how so many people in the US are still completely clueless about what’s happening. It’s insane.

  14. 14
    Villago Delenda Est says:

    @MattF:

    “Dumbledore says people find it far easier to forgive others for being wrong than for being right,” said Hermione. “I heard him telling your mum, Ron.”

    “Sounds like the sort of mental thing Dumbledore would say,” said Ron.

  15. 15
    terraformer says:

    And the message machine obfuscates the answers about why austerity now! is the way to go. If people knew, then maybe they’d think differently – much like just about every topic of government and policy these days. I really liked the top comment at Krugthulu’s place (long but good):

    Austerity policies provide real and significant benefits to the few, the elite, the ones making the policies.

    For starters, austerity policies:

    – keep tax rates low for the wealthy, and for those claiming unearned income:

    – drive wages down, severely

    – generate insecurity among workers so that they so fear for their survival that they will do as they’re told, without complaint or attempting to organize unions)

    – drive prices of real property down, severely, and those with money can swoop in and buy at fire sale prices

    – deprive people of the government benefits that were previously “guaranteed” so that they will distrust government and any other promises made in the future

    – increase the disparity between the wealthy and non-wealthy, because what fun is it to be wealthy if it doesn’t make you stand out as “special”?

    – prevent educational opportunity to the young of the non-wealthy, thereby enhancing the opportunity for the young of the wealthy, giving them an even better head start in life

    – make people so fearful for their own survival that they begin to lash out at others “beneath” them, or at public employees who have it better than they do; scrabbling for scraps keeps our attention focused away from those really calling the shots

    – accustom people to a life of kowtowing to employers for even poverty wages, and voila! Good help is now quite easy to find!

    Austerity would not be adopted if there were no benefit to elites.

  16. 16
    butler says:

    Sad that it takes a Nobel Prize winner to spell out these pretty basic economic truths in the Times. Sadder that it won’t make a difference for those who worship the false god of austerity.

  17. 17
    AlladinsLamp says:

    Hangings.

    It’s the only answer.

    And then we eat their children.

  18. 18
    harlana says:

    what you kickin’ about? Santorum says suffering and deprivation are a part of life and a gift from God. you 99%ers ought to be thankful you get a chance to redeem yourselves for being losers and not being rich, which is why God doesn’t love you.

  19. 19
    Robert Sneddon says:

    Greece’s problem isn’t austerity per se, it’s that they’ve run out of people stupid enough to lend them money at affordable rates. Without cash there can be no stimulus and Greece has no-one left to bankroll them, not even for basic civil services never mind employment stimulus.

    The US is different; it can raise cash on the world market without problems at historically low interest rates so raising the debt ceiling by another trillion means more cash flows in to power the stimulus efforts. The UK is less fortunate in that regard as our borrowing is a bit more expensive than the petrodollar-powered US but we’ve actually been doing all those stimulus things Krugman has called for — higher-end income tax rates raised (50% for UKP150,000 and above), lower taxes for low-earners, big cuts to defence spending and staffing reductions, big shovel-ready civil projects given the go-ahead (HS2) or funding continued where necessary (London Crossrail, for example).

  20. 20
    PeakVT says:

    @Egg Berry: Starting with that wanker Cowen, hopefully (but not likely, since he’s ensconced at a Koch-funded institute).

    @Gwiwer: Unfortunately, it’s not as obvious as you think, mostly because our media is so bad. Try watching Faux and only Faux for a week and see how misinformed you become.

  21. 21
    Jamie says:

    t may be time to fire all of the economists and make them all reapply for their present positions

  22. 22
    bemused says:

    @harlana:

    I find it fascinating how people who have never or rarely experienced serious suffering and deprivation become insufferable, lecturing authorities.

  23. 23
    jon says:

    I don’t think giving the States money at this time would do much more than encourage more State tax cuts. Extra money for many governors only means more opportunity to make another sacrifice to fiscal insanity and Cargo Cult Republicanism.

  24. 24
    eric says:

    @Robert Sneddon: true insofar as Greece could rebound were it so that the rest of Europe were rebounding (as well as the US). It is here that austerity first policies are crippling a continental and world wide recovery. Greece’s problems could more easily be addressed were Europe itself not suffering, but that is where the allegiance to failed structural solutions is most insidious.

  25. 25
    scav says:

    @bemused: well, bishops, cardinals and the pope are lecturing scolds and experts on pregnancy — must just be the way of the world. Paris Hilton’s Dumpster Diving Tips must be just about to air.

  26. 26
    PeakVT says:

    @Robert Sneddon: In real terms, the UK budget is flat. The VAT was raised in 2011, which certainly hurts lower earners. HS2 is far from shovel-ready since construction won’t start until 2018. And continued funding of existing projects doesn’t pick up any new slack that developed during the downturn.

    So, other than all that, the UK is doing what is recommended.

    ETA: Yes, Crossrail has been ramping up slowly since the start of the downturn. It’s still not fully under way, however.

  27. 27
    schrodinger's cat says:

    Austerity and its cousin inflation targeting benefits the rentiers, i.e. people like Mitt Romney, who make their money from investment income rather than wages. Increase the capital gains tax for starters and institute a modest financial transaction

  28. 28
    schrodinger's cat says:

    Why doesn’t Greece leave the Eurozone?

  29. 29
    eric says:

    @schrodinger’s cat: on this point, get ready for fears of inflation and rising wages concerns from Wall Street….it will have to be subtle to percolate into the elections, but you will hear it louder and louder as the economy improves….fear of rising gas, food, and rent with wages to price ordinary americans out of any recovery. blah blah blah

  30. 30
    Robert Sneddon says:

    @eric: Greece is the basket case, though — last time I heard their Government bonds were at 8% and no takers because nobody in their right mind believes they would ever pay them back. In comparison US 10 year Treasuries – google, google – are returning 2.00% and no-one apart from the TFH Paulites thinks the US will not be in a position to redeem them when they mature.

    Others in Europe are hurting — the PIIGS in particular because they bet the farm on fly-by-night spectaculars — but they’re not nearly as bad. Fixing Greece will take a lot of the pain away for the rest of the PIIGS group, showing them that they’re not going to be abandoned.

    Heck, the US has never really considered tossing Alaska or Alabama out of the Union even though they are as much of an economic moneyhole as Greece is, economically speaking.

  31. 31
    PeakVT says:

    @schrodinger’s cat: Because, rightly or wrong, Greek politicians seem to be convinced that leaving the Eurozone would be worse than staying in and suffering for a decade or so.

    ETA: And one might think this would make them change their minds, but probably not.

  32. 32
    eric says:

    @Robert Sneddon: right, but my point is that if the US government adopted more non-austerity driven budget policies, then Alaska and Alabama would be better off. You just cant fix Greece in a vacuum. You need the whole continent to improve and then the hard choices would be less painful to the people of Greece. That is Krugman’s larger point. The current policy proclivities of the World Elite hurts everyone and not just the citizens of their own countries. If the US, Europe, and Asia were doing better, you could address Greece’s more particularized structural problems. Thus, Greece’s problem can be found, not simply in Greece’s fundamentals, but in American business schools, boardrooms, fed reserve boards, congress, and the whitehouse.

  33. 33
    BroD says:

    Why does the GOP insist on the imposition of European-style austerity?!

  34. 34
    Robert Sneddon says:

    @PeakVT: The money for HS2 is being allocated and the preparatory work will boost the economy somewhat. Real austerity measures would have chopped that project along with other construction like the new Forth Bridge crossing, about UKP1.3 billion spending to add an as-yet unnecessary extra road connection between the Lothian region and Fife. The original Forth Road Bridge is about fifty years old and it won’t be able to handle heavy traffic safely in a decade or two so a new bridge is being built now rather than later, completion expected in 2016.

    God help us even the UKP750 million Edinburgh trams project is continuing, part of it outside my front door…

  35. 35
    RalfW says:

    It is a bit madness, a good measure of desire do end the New Deal, but it is also part and parcel of the broader anti-empiricism of the “modern” GOP.

    They deny the facts and figures in front of them on a daily basis on a whole host of policy matters. What is called conservatism has become a worship of bogus ideas with flimsy rationales in service to an elite that seeks only power and not human betterment.

    Facts and analysis have a liberal bias. Because, well, liberals still believe in human betterment, conservatives these days seem to think most people (other than their rarefied, Bobo-Burkean selves of course) are savages that deserve to fight over scraps.

    It’s an awful future they see in their cramped, festering minds. And they’re working hard to realize it.

  36. 36
    DanielX says:

    @Gwiwer:

    “Hard choices and sacrifice” (for thee but not for me) is one of the slogans you’ll keep hearing. Tax cuts in good times, tax cuts in bad times, there’s another. These beliefs are not based upon reason and empirical evidence, but upon cult like behavior and belief. However…the whys and wherefores can be understood based upon three fairly simple propositions. These were formulated by a long term Republican, mind you:

    1. The GOP cares solely and exclusively about its rich contributors.
    2. They worship at the altar of Mars.
    3. Give me that old time religion.

    For details…

    http://www.truth-out.org/goodb.....1314907779

    Putting these principles into practice using well worn propaganda techniques has yielded electoral success followed by major policy disasters for the last thirty years. Those responsible for the disasters face no real consequences, and the disasters themselves end up vanishing down the memory hole. Examples: witness the conspicuous absence of the name “Bush” from the rhetoric of the various Republican candidates. Witness also the equally conspicuous absence of any mention of the great domestic and foreign policy “successes” during the period 2000-2008. The latter being easy enough to explain, there weren’t any.

    As icing on the cake, consider also some of the changes which have occurred over the last thirty years to make any meaningful consequences for misbehavior unlikely. The lawbreaking which resulted in Watergate would have no consequences today, the acts which were criminal violations at the time have been legalized. Financial misdeeds which would have been criminal offenses under Glass-Steagal? No problem, Glass-Steagal went away in 1999. The examples of disasters and breakdown in legal controls I mention are just that, examples: there are many more. Many or all of which have been screamed about, figuratively speaking, by a lot of commentators who are more technically expert and better writers than I. The evidence is all there, but if you’re not interested in looking for it or hearing it, you won’t see it.

    What is there not to understand? If you don’t spend time learning about the issues for yourself, you will generally find out about the issues by listening to whoever yells the loudest. The Mighty Wurlitzer is a one way amplifier. There is no liberal/progressive equivalent of Faux News. There are no liberal/progressive equivalents of Rush Limbaugh or Sean Hannity. You’re never going to see major Democrats making a statement that Rachel Maddow or Jon Stewart don’t like walking back that statement in 24 hours or less.

    The end effect is – to put it kindly – irrational belief and action. Cognitive dissonance is a concept which has no meaning for true believers, who have no problem at all believing in two conflicting ideas. (Example: keep the government out of my Medicare!) The Republican Party is no longer a party, it’s a cult.

  37. 37
    bemused says:

    @scav:

    And these pompous, know-it-all scolds don’t know jack shit about issues they feel is their god given duty to mandate for everyone else. Also, too, control freaks.

  38. 38
    chopper says:

    @Johannes:

    santorum, aka The King in Frothy Brown.

  39. 39
    vernon says:

    Ahhhh. Nothing beats the smell of Lovecraft in the morning!

  40. 40
    chopper says:

    @Robert Sneddon:

    greece’s 1-year bond is currently at 615%. the 5-year is at about 55%. 10-year is at 34%.

    it’s pretty crazy.

  41. 41
    Nemesis says:

    Austerity Fever..Catch it!!!

  42. 42
    Robert Sneddon says:

    @chopper: Greece needs to borrow money to keep the lights on. Funding a stimulus package is very much secondary to their dire need for cash right now to pay government workers and supply necessary services to their population.

    US commentators believe that since the US government can borrow a trillion bucks here and a trillion bucks there at low interest rates and without difficulty everyone else in the developed world can do the same. Greece needs the ECB (aka the Bundesbank) to bail them out and a part of the deal they are being offered is on condition that Greece’s corrupt and incompetent tax collection system starts to work properly. This may not be possible.

  43. 43
    harlana says:

    i could respect them a little more if they would just come out and admit they want most of us to die but leave enough wage/debt slaves for them to exploit for massive profits – i guess that’s why the want us to still keep having babies; years of non-existent basic health care combined with poor living conditions and virtually no protection, is not conducive to longevity and we don’t really want all those old people around sucking up resources anyway when they’re just no longer up to the job.

    also, the young women (and men) can be exploited by their masters and so on.

    sound familiar?

  44. 44
    MBunge says:

    @MattF: “Krugman’s fatal problem is that he’s been right about too many things.”

    No, Krugman’s fatal problem is that he may have a Nobel Prize in economics but he still rides the short bus to school when it comes to politics. Krugman thinks that if he can prove he’s the smartest guy in the room, everybody else will just shut up and do what he says. That’s not how the world works and that Krugman doesn’t understand that at his age is kind of embarassing.

    We need more stimulus. Has anything Krugman done or said the last 3 years increased the chances of getting more stimulus? Or has 3 years of bitching about Obama and the stimulus we got only contributed to the negative public attitude toward the whole idea of federal stimulus? Maybe if Krugman spent time emphasizing how the stimulus worked and how much better off the U.S. is than Europe instead of reminding everyone how right he is, he might be a lot closer to getting the policy he says he wants.

    Mike

  45. 45
    PeakVT says:

    @MBunge: So point us to somebody who, through their Broder-approved civilized discussion, has improved the chances for proper economic policy in this country, or any other.

  46. 46
    General Stuck says:

    @Mino:

    Obama has been pretty good at getting surreptitious stimulus out the door, too.

    Yup, and not a word of this from Prince Kthug. It is looking like all the bullshit hammering on Obama wasn’t deserved. It is looking like that a lot. Yawn. Just another polemicist telling me what I already know. they are dime a dozen.

    http://tpmdc.talkingpointsmemo.....hp?ref=fpa

  47. 47
    p says:

    WaPo with a “Most Popular” article on MMT in the past few days. Everyone hop aboard the train.

  48. 48
    MattF says:

    @MBunge: Well, yes and no. Yes, Krugman sucks at politics–but also, no, saying he should do ‘x’ or ‘y’ isn’t going to fix that. He’s doing what he’s good at– taking the role of ‘burr in the saddle,’ and calling bullshit when he sees it.

  49. 49
    Michael says:

    “The beatings will continue until morale improves” is supposed to be sarcasm, not economic policy.

  50. 50
    Villago Delenda Est says:

    @schrodinger’s cat:

    Keynes’ great sin: calling for the euthanasia of the rentiers.

    Screw that. Tumbrels for the lot of them.

  51. 51
    Jay C says:

    BTW, since other have brought the subject up: isn’t all this publicity about European financial woes all very good news for John McCain Mitt Romney?

    I’ve been hearing constantly from most Web-pundits that a “European crisis/meltdown/bankruptcy/asteroid strike/whatever” will be one of those factors that will astoundingly bolster Republican prospects for the Fall, and doom Obama’s reelection chances; and I really have a hard time seeing it. Even if Barry hasn’t been pushing “good” fiscal policy to Prof. Krugman’s satisfaction, the worse “Europe” gets (and FWIW, I don’t think another 1929 1931 is quite in the cards) any US recovery, however partial, is only going to vindicate Administration strategies, however inadequate, and leave the GOP with little more than bile and slogans to run on (like always).

  52. 52
    General Stuck (Bravo Nope Zero) says:

    I’d like to see Krugman turn his fire onto the monopolistic oil industry that is shaping up to be a threat to the recovery, and Obama’s reelection chances. And I do basically like Krugman, he just is such a klutz on politics.

  53. 53
    JGabriel says:

    K-Thug:

    Now the results are in — and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending.

    Those who refuse to learn history learn history from Ayn Rand are doomed to repeat it.

    .

  54. 54
    JGabriel says:

    Zandar:

    The evidence against austerity keeps piling up, but of course austerity for the 99% to benefit the 1% is the point in and of itself, and it always has been.

    We can’t force the job creators to pay wages — if we do that, how can they afford to create new jobs?

    .

  55. 55
    gex says:

    It matters not a whit what empiricism says. Conservatives and Libertarians have an ideology that encompasses what is good and right. If the outcomes are more pregnant teens and poisonous peanut butter, that’s actually okay so long as the abstinence only and deregulation ideology has been honored.

  56. 56
    gex says:

    @Gwiwer: Those policies are sold hand in hand with telling them they are the good kind of people and all the bad kind of people are fucking things up for them. Those brown gay women atheist secular liberals are the reason everything’s gone to shit, not because the 1% are sapping the US economy like vampires.

    There’s a reason the only demo the GOP presidential candidate wins are white men. (I assume Christian and straight too, but the polling doesn’t break it down that way.)

    Of course, they’re not racist, sexist, bigots. It’s just that all those other people are too stupid to be, well to even be allowed to vote really. This is why we need to go back to how the Founding Fathers did it. Then white men can argue from either side of the aisle, confident that any liberal policies they might champion won’t help anyone but them. You know, like it was in Brooks’ idealized era.

  57. 57
    Brachiator says:

    @MBunge:

    No, Krugman’s fatal problem is that he may have a Nobel Prize in economics but he still rides the short bus to school when it comes to politics. Krugman thinks that if he can prove he’s the smartest guy in the room, everybody else will just shut up and do what he says. That’s not how the world works and that Krugman doesn’t understand that at his age is kind of embarassing.

    True dat. I recall watching Krugman schooling the other panelists about deficits on the ABC Sunday pundit show. After listening to him, Cokie Roberts (or an unreasonable facsimile) just threw up her hands and noted that the politicians on the Hill didn’t care about economics and would do what they wanted anyway.

    We need more stimulus.

    Maybe. But Krugman’s prescription may not be as useful as he makes out:

    Well, never mind: all the federal government needs to do to give the economy a big boost is provide aid to lower-level governments, allowing these governments to rehire the hundreds of thousands of schoolteachers they have laid off and restart the building and maintenance projects they have canceled.

    Krugman oversimplifies and seems to think that you need only replace deficits with government spending, and that a national economy only requires a one size fits all national solution. But the problems of the states are not necessarily uniform. In California, especially Southern California, there have been school closures because of a decline in student population. Worse, there is money allocated for unneeded school construction from past propositions that cannot be used for teacher salaries or other uses.

    And Krugman is just clueless about tax policy. As an economist he looks more at aggregate economic issues, but it tends to make his prescriptions less useful than he realizes.

  58. 58
    Neo says:

    GEITHNER: You could have taken [the chart] out [to the year] 3000 or to 4000. [Laughs]

    RYAN: Yeah, right. We cut it off at the end of the century because the economy, according to the CBO, shuts down in 2027 on this path.

    As with any addict, whether it be drugs, gambling or out of control spending, withdraw is always painful.

    When 2 of every 5 dollars spent is borrowed, giving up borrowing is only going to leave you with only 3 dollars of your previous 5 dollars to spend. If it was easy, we probably would have done it long ago.

  59. 59
    p says:

    I think Krugman understands the practical politics shaping our reality. It is misdiagnosis to say that because he continues to be a more-or-less unabashed Truth Teller that he doesn’t understand these things; what else could he do in standing up to the Paul Ryans of the world except tell it like it is?

  60. 60
    Raenelle says:

    This policy-making that benefits the 1%–feature or bug? And this democracy tool we’re supposed to have, like shaking your finger at the Rocky Mountains. I never wanted to think the way I do now, I always wanted to believe in the Bill of Rights and democracy and representative government disciplined by checks and balances, but Marx just looks smarter every day.

  61. 61
    Bruce S says:

    “Austrian economics eschews empirical evidence. Meaning they just get to make shit up and call it ‘true’. So any data you might have to contradict their voodoo they just dismiss.”

    Yeah, which leaves me thinking that Ayn Rand is the only “real deal” in this sector. She was a sociopath who openly didn’t give a shit about another human being. That’s what this crap is about – ME! and screw the “undeserving”. But most of this crew is too cowardly to admit their game in the public square. So you get some Randist dickwad like Paul Ryan BSing about “saving Medicare” as he proposes a slow strangulation while hiding behind his totally contradictory “Catholicism” which even at it’s worst – like these past weeks – isn’t contemptuous of providing minimal sustenance to the poor, the sick and the old as are these scumbags. At least the Ayn Rand crowd will just tell you to go fuck yourself if you’re not wealthy. No pretense to a “common good” which even the CATO types try to bend their ridiculous theories to.

  62. 62
    Chris T. says:

    @schrodinger’s cat: You mean deflation?

    People constantly get this wrong, and I’m not quite sure why. On the whole, modest (i.e., non-runaway) inflation is good for debtors (“the poor”) and bad for creditors (“the rich”), for the simple reason that if I borrow a million bucks from you today with the promise to pay it back in 30 years, and 30 years from now a million bucks is the going price for (say) a well-knit sweater-vest, I merely need to make and sell one such sweater-vest to pay you back.

    Of course, a smart lender will charge you higher interest rates when inflation is higher. But the point is, inflation is a form of “money entropy”, that eats away both debt and savings. Those who have their debt eaten away, and thus forgiven, benefit. Those who have their Giant Pile O Cash, Gold, and Diamonds eaten away, lose.

    Inflation is definitely not “all good”, because it also interferes with planning for the future, but a modest 2 or 3 percent a year is, on the whole, positive. Inflation is also rarely uniform across all goods and services. For instance, right now, inflation is basically nonexistent on high-tech gadgets (cell phones and computers cost less today than they did ten years ago, or cost the same but give you a lot more features), but inflation on important items like college education and health care has been running at double-digit rates. That’s approaching “runaway” territory, and is made worse by being a small enough part of the economy (and affecting different people differently enough) so that wages don’t rise to meet it.

  63. 63
    schrodinger's cat says:

    @Chris T.: No I don’t, you are making my point in your opening paragraph.

    On the whole, modest (i.e., non-runaway) inflation is good for debtors (“the poor”) and bad for creditors (“the rich”),

  64. 64
    Ben Wolf says:

    Krugman oversimplifies and seems to think that you need only replace deficits with government spending, and that a national economy only requires a one size fits all national solution. But the problems of the states are not necessarily uniform. In California, especially Southern California, there have been school closures because of a decline in student population. Worse, there is money allocated for unneeded school construction from past propositions that cannot be used for teacher salaries or other uses.
    And Krugman is just clueless about tax policy. As an economist he looks more at aggregate economic issues, but it tends to make his prescriptions less useful than he realizes.

    Krugman’s misunderstandings are almost entirely related to the banking and monetary systems and how government and private sector spending interact. But these aren’t areas he’s studied, and he has been making baby steps in the right direction.

  65. 65
    Brachiator says:

    @Ben Wolf:

    Krugman’s misunderstandings are almost entirely related to the banking and monetary systems and how government and private sector spending interact. But these aren’t areas he’s studied, and he has been making baby steps in the right direction.

    Makes sense. Good points. Thanks.

    The thing is, 2012 sees the end of a lot of major tax items. The Obama Administration, if they win re-election, is going to need to do more than simply cobble together another creaky compromise which drags the GOP kicking and screaming toward reality. It would be nice if Krugman had a better insight into this, or better recommendations about the details of a sound fiscal and tax policy.

  66. 66
    Subnumine says:

    California is incapable of sane budgeting; dedicated construction funds which cannot be redirected to something the district actually needs are merely another example of bad public policy.

    What this has to do with Krugman is not clear. He’s from New Jersey.

Comments are closed.