That ’30s Feeling

Discussion in 'Economics' started by Optionpro007, Jun 18, 2010.

  1. That ’30s Feeling
    Published: June 17, 2010

    Fred R. Conrad/The New York Times

    Paul Krugman

    Suddenly, creating jobs is out, inflicting pain is in. Condemning deficits and refusing to help a still-struggling economy has become the new fashion everywhere, including the United States, where 52 senators voted against extending aid to the unemployed despite the highest rate of long-term joblessness since the 1930s.

    Many economists, myself included, regard this turn to austerity as a huge mistake. It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession. And here in Germany, a few scholars see parallels to the policies of Heinrich Brüning, the chancellor from 1930 to 1932, whose devotion to financial orthodoxy ended up sealing the doom of the Weimar Republic.

    But despite these warnings, the deficit hawks are prevailing in most places — and nowhere more than here, where the government has pledged 80 billion euros, almost $100 billion, in tax increases and spending cuts even though the economy continues to operate far below capacity.

    What’s the economic logic behind the government’s moves? The answer, as far as I can tell, is that there isn’t any. Press German officials to explain why they need to impose austerity on a depressed economy, and you get rationales that don’t add up. Point this out, and they come up with different rationales, which also don’t add up. Arguing with German deficit hawks feels more than a bit like arguing with U.S. Iraq hawks back in 2002: They know what they want to do, and every time you refute one argument, they just come up with another.

    Here’s roughly how the typical conversation goes (this is based both on my own experience and that of other American economists):

    German hawk: “We must cut deficits immediately, because we have to deal with the fiscal burden of an aging population.”

    Ugly American: “But that doesn’t make sense. Even if you manage to save 80 billion euros — which you won’t, because the budget cuts will hurt your economy and reduce revenues — the interest payments on that much debt would be less than a tenth of a percent of your G.D.P. So the austerity you’re pursuing will threaten economic recovery while doing next to nothing to improve your long-run budget position.”

    German hawk: “I won’t try to argue the arithmetic. You have to take into account the market reaction.”

    Ugly American: “But how do you know how the market will react? And anyway, why should the market be moved by policies that have almost no impact on the long-run fiscal position?”

    German hawk: “You just don’t understand our situation.”

    The key point is that while the advocates of austerity pose as hardheaded realists, doing what has to be done, they can’t and won’t justify their stance with actual numbers — because the numbers do not, in fact, support their position. Nor can they claim that markets are demanding austerity. On the contrary, the German government remains able to borrow at rock-bottom interest rates.

    So the real motivations for their obsession with austerity lie somewhere else.

    In America, many self-described deficit hawks are hypocrites, pure and simple: They’re eager to slash benefits for those in need, but their concerns about red ink vanish when it comes to tax breaks for the wealthy. Thus, Senator Ben Nelson, who sanctimoniously declared that we can’t afford $77 billion in aid to the unemployed, was instrumental in passing the first Bush tax cut, which cost a cool $1.3 trillion.

    German deficit hawkery seems more sincere. But it still has nothing to do with fiscal realism. Instead, it’s about moralizing and posturing. Germans tend to think of running deficits as being morally wrong, while balancing budgets is considered virtuous, never mind the circumstances or economic logic. “The last few hours were a singular show of strength,” declared Angela Merkel, the German chancellor, after a special cabinet meeting agreed on the austerity plan. And showing strength — or what is perceived as strength — is what it’s all about.

    There will, of course, be a price for this posturing. Only part of that price will fall on Germany: German austerity will worsen the crisis in the euro area, making it that much harder for Spain and other troubled economies to recover. Europe’s troubles are also leading to a weak euro, which perversely helps German manufacturing, but also exports the consequences of German austerity to the rest of the world, including the United States.

    But German politicians seem determined to prove their strength by imposing suffering — and politicians around the world are following their lead.

    How bad will it be? Will it really be 1937 all over again? I don’t know. What I do know is that economic policy around the world has taken a major wrong turn, and that the odds of a prolonged slump are rising by the day.
  2. TGregg


    Trillions of dollars wasted in stimul-ass and Krugman wants trillions more. We could spend thousands of trillions of dollars and losers like this will still insist that we can spend our way out if we spend thousands of trillions more.

    A trillion dollars is a shit load of money, more than most of us can even imagine. Here's a page that helps:

    Yet Krugman and his Keynes-addled groupies think a few more warehouses of debt will solve all our problems. But you don't have to take my word for it, just watch. The EU isn't adopting austerity because suddenly a bunch of von Misses types have been using mind control rays on them, but because the free market is saying "Sorry dudes, it's just too darn risky to lend you money at the old prices." The same market that just a few years ago was saying "Hey man, I know you ain't got no job, no money and all, but how'd you like a mortgage? Or two?" thinks some of these countries are risky. That's pretty scary.

    Or watch Japan. A recent budget proposal had the government spending more than twice their expected revenue! The countries of the world are pulling up water out of the well at faster and faster rates, but they are having to go deeper and deeper to get a bucket of water. It's not hard to see the future of the well.

    But I guess I'm making all this up. There's nothing to worry about, let's just go on spending more than we make. It works so well in our personal lives that we just have to do it on a national and even global scale.
  3. achilles28


    Krugmans an idiot. There's no way out. The time to clean the pipes was 1987. It's a little late to be deluding ourselves this debt-implosion is escapable.
  4. olias


    Krugman is a tool if he's going to present his argument this way. People don't know how to have an intelligent debate any more.
  5. ....bp gets boot on the throat and azz kicked for a problem that is in reality tiny when compared to the damage done by governments and central bankers. and the "spill hole" of our governments will never be plugged .
  6. governments don't understand economics, they can't, governments are made of scum worthless souls whose monthly pay is guaranteed, how can such a pathetic piece of crap understand economics, when such a shithead is paid monthly regardless of her performance, how in fucking hell could she care to support the economy, and even if they did try to support it, these pussies can't understand basic math, how the fuck do they want to understand economics

    obama the clown is what america wanted, obama is what they got