One Man Crusade

Paul Krugman has a lonely calling. He is the voice of reason in a sea of irrationality. Here are some bits from his latest NY Times op-ed in which he argues -- yet again -- that austerity and budget cutting are not the way out of the current Great Recession:

When I was young and naïve, I believed that important people took positions based on careful consideration of the options. Now I know better. Much of what Serious People believe rests on prejudices, not analysis. And these prejudices are subject to fads and fashions.

Which brings me to the subject of today’s column. For the last few months, I and others have watched, with amazement and horror, the emergence of a consensus in policy circles in favor of immediate fiscal austerity. That is, somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed.

This conventional wisdom isn’t based on either evidence or careful analysis. Instead, it rests on what we might charitably call sheer speculation, and less charitably call figments of the policy elite’s imagination — specifically, on belief in what I’ve come to think of as the invisible bond vigilante and the confidence fairy.

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What’s the evidence for the belief that fiscal contraction is actually expansionary, because it improves confidence? (By the way, this is precisely the doctrine expounded by Herbert Hoover in 1932.) Well, there have been historical cases of spending cuts and tax increases followed by economic growth. But as far as I can tell, every one of those examples proves, on closer examination, to be a case in which the negative effects of austerity were offset by other factors, factors not likely to be relevant today. For example, Ireland’s era of austerity-with-growth in the 1980s depended on a drastic move from trade deficit to trade surplus, which isn’t a strategy everyone can pursue at the same time.

And current examples of austerity are anything but encouraging. Ireland has been a good soldier in this crisis, grimly implementing savage spending cuts. Its reward has been a Depression-level slump — and financial markets continue to treat it as a serious default risk. Other good soldiers, like Latvia and Estonia, have done even worse — and all three nations have, believe it or not, had worse slumps in output and employment than Iceland, which was forced by the sheer scale of its financial crisis to adopt less orthodox policies.

So the next time you hear serious-sounding people explaining the need for fiscal austerity, try to parse their argument. Almost surely, you’ll discover that what sounds like hardheaded realism actually rests on a foundation of fantasy, on the belief that invisible vigilantes will punish us if we’re bad and the confidence fairy will reward us if we’re good. And real-world policy — policy that will blight the lives of millions of working families — is being built on that foundation.

What amazes me is the disconnect between "the haves" and the "have nots". There is simply no regard for the suffering being endured by tens of millions because of the greed and mistakes of some very rich people. Meanwhile, "the haves" show no awareness of or sympathy for that suffering. That is simply cruel. The story of a dog being beaten gets more attention than the plight of millions of Americans being cut off from unemployment benefits. It really disturbs me that the media amplify the posturing of well bed, brain dead people while the needs of millions are ignored.

Beyond the simple inhumanity of the economic system, there is the stupidity of foregoing the productivity possible if you put people to work. Getting infrastructure done now is cheap. When the politicians get around to it in 5 or 10 years, when conditions will be incomparably more dire than they are now, that spending will indeed "crowd out" other spending and lead to inflation. But nobody sees the sense of spending now when capacity is underutilized and there is a "army of unemployed" more than willing and able to work. Tragic.