Krugman savages the “austerity debacle”


 

Economics Nobel Laureate Paul Krugman has attacked the “austerity debacle” taking place in Britain and elsewhere, pointing out the UK is “nowhere close” to regaining ground lost during the recession, with the country doing much worse than it had after the 1930s Depression and 1973, 79 and 90 recessions.

Gideon-Osborne-staring-at-the-lightIn his latest NY Times column, he notes:

Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart [see Chart 1 below] comparing the current slump with past recessions and recoveries.

It turns out that by one important measure – changes in real G.D.P. since the recession began – Britain is doing worse this time than it did during the Great Depression.

Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.

Nor is Britain unique. Italy is also doing worse than it did in the 1930s – and with Spain clearly headed for a double-dip recession, that makes three of Europe’s big five economies members of the worse-than club. Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy.

And it’s a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.

Chart 1:

UK-GDP-change-from-peak
He goes on to take aim at British economic policy in particular, accusing the coalition of resorting to “ideologically convenient wishful thinking”, and throwing “hard-won knowledge” gleaned over the past 80 years “out the window”, mocking the idea of expansionary fiscal contraction:

Haven’t we learned a lot about economic management over the last 80 years? Yes, we have - but in Britain and elsewhere, the policy elite decided to throw that hard-won knowledge out the window, and rely on ideologically convenient wishful thinking instead.

Britain, in particular, was supposed to be a showcase for “expansionary austerity,” the notion that instead of increasing government spending to fight recessions, you should slash spending instead – and that this would lead to faster economic growth.

“Those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong,” declared David Cameron, Britain’s prime minister. “You cannot put off the first in order to promote the second.” How could the economy thrive when unemployment was already high, and government policies were directly reducing employment even further?

As Krugman concludes:

The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist – or for that matter any undergraduate who had read Paul Samuelson’s textbook “Economics” – could have told you that austerity in the face of depression was a very bad idea.

But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.

See also:

George Osborne is the downgraded chancellor of a deflationary governmentWilliam Bain MP, December 8th 2011

Balls mocks “Panglossian” Osborne over Bullingdon, growth and BorisShamik Das, December 7th 2011

Krugman: Coalition is “bleeding” Britain dryAlex Hern, December 1st 2011

Ex-Cabinet Office chief economist: slower cuts are “common sense”Will Straw, August 25th 2011

Coalition cuts are deeper and faster than Tea Party’sWill Straw, August 2nd 2011

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  • Anonymous

    It’s a failure of borrow and spend.

    It’s failure of Ponzi pensions.

    It’s a failure of Blair Brown and Labour.

    Time I think for the rewards for failure to be stopped.

    Brown and co should hand back their gold plated pensions.

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  • Fpvanham

    it’s rather desperate to be pointing the finger at brown and labour, 2 years into the current parliament, to try to explain away the apparent failure of the austerity measures taken by this government.

  • http://twitter.com/oxkev Oxford Kevin

    Blair & Brown bear a lot of responsibility for the economic crisis, but not because of spend and borrow, but because they failed to regulate the bankers.

    Watch the smearers of Krugman arrive because they can’t deal with the evidence he provides.

  • Chriskitcher

    What I can’t understand is why is Browns and Labours fault when other countries are facing the same problems?

  • Chriskitcher

    What I can’t understand is why is Browns and Labours fault when other countries are facing the same problems?

  • http://twitter.com/oxkev Oxford Kevin

    Hi Chris,

    Take for example the USA which was probably the biggest contributor to the financial crisis. Two of the biggest financial players in the the US who got into massive problems were the Bank of America (BoA) and the American Insurance Group (AIG). They needed to use their UK offices to create the complex toxic financial products which were behind a lot of the problems because US financial regulation prohibited these activities. The lax UK banking regulations made this possible & have a lot to answer for and it was the reason the US was so pissed off with the UK as the financial crisis first took hold. The liabilities the US Gov took to save BoA and AIG were absolutely massive because of this.

    BoA and AIG, took large numbers of mortgages and mixed them up, so it was difficult to track which were the sub prime ones and which weren’t in any particular product. Then getting the products classified as high rated products (AA, AA+ etc.) for investors like pension funds to put their money into made far more money available for building the property boom than would have otherwise been possible.

    Does that make sense?

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  • Awake!

    Krugman is a clown- don’t be fooled by his laureate, what was it for again, equilibrium euations on global trade flows? Did he, whilst he was microscopically inspecting some random event, did he notice the glaring obvious IMBALENCES that were building up globally. Did he write a piece in the last 20 years saying these HAD to be addressed. No, all the man did was contribute to the bubble, all he has ever done is be part of a system designed to enslave people through debt. He, Summers, Paulson, even greenspan(but noy in the same category), all they did , and Blanchflower, is keep telling bankers and governments that it was ok to keep ‘creating’ monmey, keep borrowing… the result today is of their making as well. if one thinks it was JUST the bankers then they are naive and dishonest to themselves.
    Look back at his poieces over the years, krugman has onlky ever endorsed spending, he’s not a keynesian by any stretch, just a massive tool that got backed by the ‘establishment’ and evryone so imporessed by his credentials…. whatevs

  • http://twitter.com/oxkev Oxford Kevin

    1. Krugman argued consistently against the Bush Tax cuts saying they were unaffordable, whilst the Republicans argued strongly that the government shouldn’t pay down its debt too quickly and that the government surpluses should be paid back to the American people.

    2. Not only did Krugman argue strongly against the war in Iraq, he also pointed out repeatedly that there was no plan to pay for the cost of the war, with for example increased taxes, cutting other programs or cancelling the Bush Tax cuts.

    Both are clear evidence that Krugman is very much a neo Keynesian and that he recognizes that during good times the government should at least have a balanced budget.

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  • http://twitter.com/Newsbot9 Newsbot9

    The right don’t let facts get in the way of little things like THAT, Chris.

  • http://twitter.com/Newsbot9 Newsbot9

    It’s a failure of your neoliberal destruction of society
    It’s a failure of Thatcher’s destruction of pensions.
    It’s a failure of this government. The UK, and the UK alone, is not recovering.

    And that’s right, time for your failure to be dealt with.
    You should be asset-stripped as a danger to the public.

  • SimonB

    The argument for austerity is that it’s the only thing that will satisfy the markets. If their short-termism is adversely affecting the recovery then surely that’s an argument for better regulation that’s being ignored?

  • Anonymous

    1. Brown taxed private pensions to pay for your gold plated pensions.

    He didn’t invest, he spent, on people like you. Five a day coordinators etc.

    Now, you’re going to be hit because there is no money.

    Time to get into the real world. Get out there, make some money in the private sector and help the UK government pay off its debts.

  • Ed’s Talking Balls

    Hahaha

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