On Being Driven Over a Cliff

Here is a very nice posting by Paul Krugman on his NY Times blog site. He takes on the growing chorus demanding "austerity" to deal with the current financial crisis. His point is simple: the same right wing nuts who sold snake oil about "privatizing social security" are at it again...

Do you remember the debate over privatizing Social Security? For a while there, everyone on the right was in love with Chile — land of the wonderful, perfect retirement system, which proved beyond a shadow of a doubt that private accounts were the way to go.

Then some people started looking at the Chilean reality, discovered that the system had big problems (including very high administrative costs), and that the Chilean public actually hated the thing.

So now the cause is fiscal austerity — and we keep hearing about supposed examples of countries that experienced a boom after tightening fiscal policy, supposedly demonstrating that austerity is good, not bad, for employment. First was Canada in the 1990s, which turns out to be a quite different story. Now we’re hearing about Ireland in the 1980s.

So, time for a little research. And whaddya know: this story is also not at all the way it’s being told (pdf). Yes, Ireland had fiscal austerity — but it also benefited from a devaluation and an inflationary boom in the UK.

Oh, and Irish interest rates fell sharply, which was possible because they were very high to begin with; that’s not much of a precedent for the United States today, which starts with very low rates.

So yes, you can boost your economy with fiscal austerity, as long as you also devalue your currency and sharply reduce interest rates; also, incantations will destroy a flock of sheep, if administered with a sufficient portion of arsenic.

Go read the original to get the embedded links.

If George Bush has managed to "privatize" social security, then the stock market crash would have wiped out half of the retirement funds for Americans. If the right wing ideologues had had their way, the disaster would have been much much worse than simply millions of foreclosed homes and 15 million unemployed. It would have been a generation bereft of most of their retirement savings!

You would think with this kind of track record for bad advice, the right would shut up. But no... just like religious zealots see any setback as just another sign that God has picked them out for special "testing" and as evidence of their special righteousness, the right persists. It will always be there. Just like doomsday scenarios will always attract about 10% of the population, right wing fantasies will always attract about 25% of the population. It is something built into the human genome.