{"id":4107,"date":"2012-06-05T08:42:39","date_gmt":"2012-06-05T08:42:39","guid":{"rendered":"http:\/\/meeseeks:5080\/blog\/?p=4107"},"modified":"2012-06-05T08:42:39","modified_gmt":"2012-06-05T08:42:39","slug":"krugman-speaking-truth-to-power","status":"publish","type":"post","link":"https:\/\/vukutu.com\/blog\/2012\/06\/krugman-speaking-truth-to-power\/","title":{"rendered":"Krugman speaking truth to power"},"content":{"rendered":"

When the economic history of the Great Global Recession of 2007- ? comes eventually to be written, let it be recorded that many of us were profoundly opposed from the outset to the economic austerity policies pursued by Governments and central banks in Europe and elsewhere. Not only are these policies selfish, class-based, and unfair, they are also ineffective. Those of us who had heard of Keynes knew they would be ineffective before they were tried. In the case of the “rescue” of southern and peripheral Europe by northern European troikas, they are also being imposed undemocratically and unfairly, rewarding northern European private investors and bank shareholders at the expense of ordinary southern European citizens. (The effective interest rates on troika loans to Greece, which are much higher than current market rates, are truly rapacious.)
\nOnly a handful of economists in this period are speaking truth to power. The most prominent of these is Paul Krugman. He has nailed the bastards again, in this oped article<\/a> last week. Some excerpts:<\/p>\n

The bad metaphor \u2014 which you\u2019ve surely heard many times \u2014 equates the debt problems of a national economy with the debt problems of an individual family. A family that has run up too much debt, the story goes, must tighten its belt. So if Britain, as a whole, has run up too much debt \u2014 which it has, although it\u2019s mostly private rather than public debt \u2014 shouldn\u2019t it do the same? What\u2019s wrong with this comparison?
\nThe answer is that an economy is not like an indebted family. Our debt is mostly money we owe to each other; even more important, our income mostly comes from selling things to each other. Your spending is my income, and my spending is your income.”\n<\/p><\/blockquote>\n

Krugman could also have added that most families, unlike Governments, cannot increase their income by increasing their spending.<\/p>\n

So what happens if everyone simultaneously slashes spending in an attempt to pay down debt? The answer is that everyone\u2019s income falls \u2014 my income falls because you\u2019re spending less, and your income falls because I\u2019m spending less. And, as our incomes plunge, our debt problem gets worse, not better.
\nThis isn\u2019t a new insight. The great American economist Irving Fisher explained it all the way back in 1933, summarizing what he called \u201cdebt deflation\u201d with the pithy slogan \u201cthe more the debtors pay, the more they owe.\u201d Recent events, above all the austerity death spiral in Europe, have dramatically illustrated the truth of Fisher\u2019s insight.
\nAnd there\u2019s a clear moral to this story: When the private sector is frantically trying to pay down debt, the public sector should do the opposite, spending when the private sector can\u2019t or won\u2019t. By all means, let\u2019s balance our budget once the economy has recovered \u2014 but not now. The boom, not the slump, is the right time for austerity.
\nAs I said, this isn\u2019t a new insight. So why have so many politicians insisted on pursuing austerity in slump? And why won\u2019t they change course even as experience confirms the lessons of theory and history?
\nWell, that\u2019s where it gets interesting. For when you push \u201causterians\u201d on the badness of their metaphor, they almost always retreat to assertions along the lines of: \u201cBut it\u2019s essential that we shrink the size of the state.\u201d
\nNow, these assertions often go along with claims that the economic crisis itself demonstrates the need to shrink government. But that\u2019s manifestly not true. Look at the countries in Europe that have weathered the storm best, and near the top of the list you\u2019ll find big-government nations like Sweden and Austria.
\nAnd if you look, on the other hand, at the nations conservatives admired before the crisis, you\u2019ll find George Osborne, Britain\u2019s chancellor of the Exchequer and the architect of the country\u2019s current economic policy, describing Ireland as \u201ca shining example of the art of the possible.\u201d Meanwhile, the Cato Institute was praising Iceland\u2019s low taxes and hoping that other industrial nations \u201cwill learn from Iceland\u2019s success.\u201d
\nSo the austerity drive in Britain isn\u2019t really about debt and deficits at all; it\u2019s about using deficit panic as an excuse to dismantle social programs. And this is, of course, exactly the same thing that has been happening in America.
\nIn fairness to Britain\u2019s conservatives, they aren\u2019t quite as crude as their American counterparts. They don\u2019t rail against the evils of deficits in one breath, then demand huge tax cuts for the wealthy in the next (although the Cameron government has, in fact, significantly cut the top tax rate). And, in general, they seem less determined than America\u2019s right to aid the rich and punish the poor. Still, the direction of policy is the same \u2014 and so is the fundamental insincerity of the calls for austerity.
\nThe big question here is whether the evident failure of austerity to produce an economic recovery will lead to a \u201cPlan B.\u201d Maybe. But my guess is that even if such a plan is announced, it won\u2019t amount to much. For economic recovery was never the point; the drive for austerity was about using the crisis, not solving it. And it still is.” <\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

When the economic history of the Great Global Recession of 2007- ? comes eventually to be written, let it be recorded that many of us were profoundly opposed from the outset to the economic austerity policies pursued by Governments and central banks in Europe and elsewhere. Not only are these policies selfish, class-based, and unfair, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,64],"tags":[],"class_list":["post-4107","post","type-post","status-publish","format-standard","hentry","category-economics","category-politics","p1","y2012","m06","d05","h08"],"_links":{"self":[{"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/posts\/4107","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/comments?post=4107"}],"version-history":[{"count":0,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/posts\/4107\/revisions"}],"wp:attachment":[{"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/media?parent=4107"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/categories?post=4107"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/tags?post=4107"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}