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Sustainable Economy > Published by Alex Hern, December 1st 2011 at 10:51 am

Krugman: Coalition is “bleeding” Britain dry

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Economics Nobel Laureate Paul Krugman hit out with some devastating criticism of the chancellor’s autumn statement yesterday:

When the Cameron government came in, it was fully invested in the doctrine of expansionary austerity. Officials told everyone to read the Alesina/Ardagna paper (which is succinctly criticized by Christy Romer (pdf)), cited Ireland as a success story, and in general assured everyone that they could call the confidence fairy from the vasty deep.

Now it turns out that contractionary policy is contractionary after all. As a result, despite all the austerity, deficits remain high. So what is to be done? More austerity!

Underlying the drive for even more austerity is the belief that the underlying economic potential of the British economy has fallen sharply, and will grow only slowly from now on. But why? There’s a discussion in the Office for Budget Responsibility report, p. 54, that basically throws up its hands — hey, these things happen after financial crises, it says, and cites an IMF report(pdf).

So I wonder: did they read the abstract of that report? Because here’s what it says:

Short-run fiscal and monetary stimulus is associated with smaller medium-run deviations of output and growth from the precrisis trend.

That is, history says that a financial crisis reduces long-run growth potential if policymakers don’t limit the short-run damage it does [italics his].

And yet what’s happening in Britain now is that depressed estimates of long-run potential are being used to justify more austerity, which will depress the economy even further in the short run, leading to further depression of long-run potential, leading to …

It really is just like a medieval doctor bleeding his patient, observing that the patient is getting sicker, not better, and deciding that this calls for even more bleeding.

And the truly awful thing is that Cameron and Osborne are so deeply identified with the austerity doctrine that they can’t change course without effectively destroying themselves politically.

See also:

• Osborne is perilously close to failing to cut borrowing at all – Cormac Hollingsworth, December 1st 2011

• Why are lollipop ladies paying to cancel the bankers’ bonus tax? – Brendan Barber, November 30th 2011

• Osborne proved the doommongers wrong – the economy is even worse than we predicted – George Irvin, November 30th 2011

• Fast spending cuts push economy from fastest quarterly growth for a decade towards zero – Cormac Hollingsworth, November 1st 2011

• For every extra £4 spending is cut, it only cuts borrowing an extra 75p – Cormac Hollingsworth, October 18th 2011

  • http://twitter.com/labour52rose/status/142194729474465792 Alex Braithwaite

    RT @leftfootfwd: Krugman: Coalition is "bleeding" Britain dry http://t.co/Fw1vYYwk

  • http://twitter.com/alan_199/status/142195044324089857 Alan199

    READ HERE: Krugman: Coalition is "bleeding" Britain dry: http://t.co/eKPoRrJJ

  • http://twitter.com/silverbullit730/status/142196169077043200 Jamal Barry

    READ HERE: Krugman: Coalition is "bleeding" Britain dry: http://t.co/eKPoRrJJ

  • http://twitter.com/therightarticle/status/142196232096452608 Michael

    Krugman: Coalition is “bleeding” Britain dry – http://t.co/ll8UV8cr

  • http://twitter.com/dustybun1/status/142197085540859905 Lesley Farrington

    READ HERE: Krugman: Coalition is "bleeding" Britain dry: http://t.co/eKPoRrJJ

  • http://twitter.com/politicalplanet/status/142200132899831808 Political Planet

    Krugman: Coalition is “bleeding” Britain dry: Paul Krugman on why there isn't much hope that austerity will help… http://t.co/3OcpDjkO

  • http://twitter.com/jamiesw/status/142200834241994753 JamieSW

    READ HERE: Krugman: Coalition is "bleeding" Britain dry: http://t.co/eKPoRrJJ

  • http://twitter.com/pchallinor/status/142201299226722304 Philip Challinor

    So that's what "red Tory" means http://t.co/LH3WM1pA

  • Anonymous

    No. The deficit is bleeding Britain dry.

    The government is spending too much. It’s spending 25% more than it takes in taxation.

    At the same time its Bernie Maddoffing the debts off the books onto future generations, who won’t be able to pay either.

    That’s the warning for the public sector. You’re pension is only as good as the ability of the private sector being able to pay it, and more importantly willing to pay it. They may decide its not on.

    After all, who wants to pay 1,300 bn and get NO SERVICES in return.

  • Anonymous

    I think of it as a starving man eating his own body parts to make himself feel better.

  • http://twitter.com/mnods/status/142211905304526848 Mike Nodding

    READ HERE: Krugman: Coalition is "bleeding" Britain dry: http://t.co/eKPoRrJJ

  • http://twitter.com/christhegoth/status/142212299682361344 Christian Wilcox

    Another critique of The Con-Dems on the economy: http://t.co/y1NHu3NG. You build your way out of a recession, not just cut. #Croydon #Labour

  • http://twitter.com/christhegoth/status/142213055240089600 Christian Wilcox

    @GavinBarwellMP http://t.co/6antzKx1 & http://t.co/y1NHu3NG. Now add: http://t.co/dDoNB6j3. #payattention007 ( @CllrTony #Croydon #Labour )

  • http://twitter.com/lukaszduleba/status/142233216441532418 Łukasz Dulęba

    RT @leftfootfwd: Krugman: Coalition is "bleeding" Britain dry http://t.co/nEcMRt9H

  • http://twitter.com/mcteaurn/status/142240223999442944 react

    READ HERE: Krugman: Coalition is "bleeding" Britain dry: http://t.co/eKPoRrJJ

  • http://twitter.com/tullychris/status/142242728577740800 Chris Tully

    RT @leftfootfwd: Krugman: Coalition is "bleeding" Britain dry http://t.co/HUNkXSS1

  • http://twitter.com/chaostocosmos/status/142304968215498752 Pamela Heywood

    Krugman: Coalition is "bleeding" Britain dry http://t.co/zsm34CpG

  • http://twitter.com/wisewitters/status/142313983821615104 Sue

    READ HERE: Krugman: Coalition is "bleeding" Britain dry: http://t.co/eKPoRrJJ

  • http://twitter.com/Newsbot9 Newsbot9

    And your employer might decide not to pay you. Same logic. Same attack on contacts. I hope you get what you wish on others.

  • Anonymous

    Well, they may do.

    However, when it comes to the private sector and their retirement, they aren’t relying on money being extracted from other people. The private sector wants to be able to use its money for its retirement.

    Now there are issues with company schemes, because again its pooled, and we’ve seen what happens when people raid pension funds like Maxwell. It’s not good news for the pensioners.

    It’s exactly the same problem with the government. It’s going to raid all those extra contributions from the civil servants and spend them. It doesn’t make the civil servant’s pension any more safe than now. So for that civil servant on a 10K pa pension, which costs the taxpayer 350,000 to provide, they are being forced to run a massive risk, because there are no assets.

    I don’t wish it on anyone by the way, its just the reality. It’s a Ponzi, and with any Ponzi you have to look at who are the crooks. It’s politicians and government.

    So lets give an analogy. If I suffer a burglary, can I rob you to get back what I’ve lost? Is that fair?

  • http://twitter.com/Newsbot9 Newsbot9

    Yes, higher rate tax payers claiming pension relief IS relying on extracting money from other people. Again, where’s your opposition to that?

    You’re SUPPORTING making it a SCAM played PURELY on the workers. Your HATRED for the workers is shocking. Can’t have any pensions in the 99%, 1%er

    And that’s not an analogy, it’s a non-sequitur.
    You ARE supporting robbing people, and whining when people point this out, thief.

  • Anonymous

    1. It’s not tax relief it is tax deferral

    2. It is not extracting money fro others, it is extracting money from the worker.

    What the government has done is extract money from workers for their pensions, and spent it.

    Now those pensions are due, it is reneging on that contract (social contract, legal contract, promise what ever you want to call it).

    I’m not robbing anyone. I’m pointing out that the biggest thief is the government.

    It’s robbing civil servants of their promise. It’s robbing people of money to pay even the reduced pension to the civil servants. It’s not providing services for the money it takes.

    You need to get it into your head, that civil servants can be done out of their pensions and be victims AND the tax payer can be robbed at the same time to pay that money, and get no services as a consequence.

    Both are true. Both tax payer and civil servant can be victims. However, I fail to see why the minority which is civil servants should get the majority of the pie at the expense of the majority, most of whom are poor.

    There are lots of people on minimum wage pay 2.5K in employment taxes to pay for the 350,000 pounds for a 10K civil service pension.

    The truth in this case is unpleasant. You’ve then gone on the person attack because the truth is so uncomfortable you can’t take it in and have gone into denial.

  • http://www.leftfootforward.org/2011/12/ed-balls-times-op-ed-response/ Balls repeats his conference message – but the circumstances have changed | Left Foot Forward

    [...] Krugman: Coalition is “bleeding” Britain dry – Alex Hern, December 1st [...]

  • http://twitter.com/ciphergoth/status/144076031572185088 Paul Crowley

    like a doctor bleeding his patient, observing the patient is getting sicker, deciding this calls for more bleeding. http://t.co/p6lLB0Ng

  • http://twitter.com/isobel_waby/status/144076149725741056 Isobel waby

    .@EdBallsMP cites Krugman; here's what he said: http://t.co/KUHz4BZS "It really is just like a medieval doctor bleeding his patient"

  • http://twitter.com/gmg1106/status/144077556264599552 Graham Galloway

    .@EdBallsMP cites Krugman; here's what he said: http://t.co/KUHz4BZS "It really is just like a medieval doctor bleeding his patient"

  • http://twitter.com/denny/status/144078006925799424 Denny

    like a doctor bleeding his patient, observing the patient is getting sicker, deciding this calls for more bleeding. http://t.co/p6lLB0Ng

  • http://twitter.com/c_boyle/status/144091715253436416 Chris Boyle

    like a doctor bleeding his patient, observing the patient is getting sicker, deciding this calls for more bleeding. http://t.co/p6lLB0Ng

  • http://www.leftfootforward.org/2011/12/ed-balls-george-osborne-economy-debate-06-12-11/ Balls mocks “Panglossian” Osborne over Bullingdon, growth and Boris | Left Foot Forward

    [...] then quoted Krugman’s devastating attack on Osborne – in which the Nobel Laureate called the chancellor to “a medieval doctor bleeding his [...]

  • http://twitter.com/missmcn/status/144259176380645377 Laura McN

    RT @leftfootfwd: Krugman: Coalition is bleeding Britain dry http://t.co/sIm0Zifi

  • http://www.leftfootforward.org/2012/01/paul-krugman-savages-the-the-austerity-debacle/ Krugman savages the “austerity debacle” | Left Foot Forward

    [...] Krugman: Coalition is “bleeding” Britain dry – Alex Hern, December 1st [...]