The Austerity Delusion
By PAUL KRUGMAN
NYT
Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.
What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.
It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe.
It was not always thus. Two years ago, faced with soaring unemployment and large budget deficits — both the consequences of a severe financial crisis — most advanced-country leaders seemingly understood that the problems had to be tackled in sequence, with an immediate focus on creating jobs combined with a long-run strategy of deficit reduction.
(More here.)
NYT
Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.
What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.
It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe.
It was not always thus. Two years ago, faced with soaring unemployment and large budget deficits — both the consequences of a severe financial crisis — most advanced-country leaders seemingly understood that the problems had to be tackled in sequence, with an immediate focus on creating jobs combined with a long-run strategy of deficit reduction.
(More here.)
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4 Comments:
No one wants to hire as long as the government stays active in the economy. If we had let our economy hit bottom rather than continually propping up housing and other sectors, which have now proven to be squandered wealth, we would have shed the malinvestment and be on our way back up now.
But, because government keeps borrowing money to keep people jobs that should be shed, we prolong the pain and then government uses the borrowed money to pay off constituencies which is typically a misallocation of resources exascerbating the problems further.
We need to get the government out of the markets so we can hit bottom. Only then can we turn things around and start growing again and start hiring again. But, those 'jobs now' are funded with borrowed money on borrowed time.
The tech bubble is a good example of how we had a bubble that burst, companies went broke, people lost their jobs, but we recovered fairly quickly and began growing again. the difference then was the governement was not involved in the tech sector of the economy. As long as government remains active in the economy, we will continue in this malaise.
Echoes of Herbert Hoover. And how did that work out?
is comparing an economy from 2011 to an economy in 1928 an apples to apples comparison?
more like shades of FDR. Go read what FDR treasury secretary Henry Morgenthau said in 1939 about the first 8 years of the New Deal. I don't believe he qualifies as a right-wing nut job...
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