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Friday, June 01, 2012

Paul Krugman: The Austerity Agenda

What do austerity advocates really want?:

The Austerity Agenda, Paul Krugman, Commentary, NY Times: “The boom, not the slump, is the right time for austerity.” So declared John Maynard Keynes 75 years ago, and he was right... — slashing spending while the economy is deeply depressed is a self-defeating strategy,... it just deepens the depression.
So why is Britain doing exactly what it shouldn’t? ... Over the past few days, I’ve posed that question to a number of supporters of the government of Prime Minister David Cameron... And all these conversations followed the same arc: They began with a bad metaphor and ended with the revelation of ulterior motives.
The bad metaphor — which you’ve surely heard many times — equates the debt problems of a national economy with the debt problems of an individual family. A family that has run up too much debt, the story goes, must tighten its belt. So if Britain ... has run up too much debt — which it has, although it’s mostly private rather than public debt — shouldn’t it do the same? What’s wrong with this comparison? ...
When the private sector is frantically trying to pay down debt, the public sector should do the opposite, spending when the private sector can’t or won’t. By all means, let’s balance our budget once the economy has recovered — but not now. The boom, not the slump, is the right time for austerity.
As I said, this isn’t a new insight. ... And ... when you push “austerians” on the badness of their metaphor, they almost always retreat to assertions along the lines of: “But it’s essential that we shrink the size of the state.”  ...
So the austerity drive in Britain isn’t really about debt and deficits...; it’s about using deficit panic as an excuse to dismantle social programs. And this is, of course, exactly the same thing that has been happening in America.
In fairness to Britain’s conservatives, they aren’t quite as crude as their American counterparts..., in general, they seem less determined ... to aid the rich and punish the poor. Still, the direction of policy is the same — and so is the fundamental insincerity of the calls for austerity.
The big question here is whether the evident failure of austerity to produce an economic recovery will lead to a “Plan B.” Maybe. But my guess is that even if such a plan is announced, it won’t amount to much. For economic recovery was never the point; the drive for austerity was about using the crisis, not solving it. And it still is.

    Posted by on Friday, June 1, 2012 at 12:24 AM in Budget Deficit, Economics, Fiscal Policy | Permalink  Comments (101)



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