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Friday, February 01, 2013

Paul Krugman: Looking for Mister Goodpain

The advocates of fiscal austerity can't admit that contractionary policy is contractionary despite the evidence that has stacked up against their policy prescriptions:

Looking for Mister Goodpain, by Paul Krugman, Commentary, NY Times: ... In recent columns, I’ve argued that worries about the deficit are, in fact, greatly exaggerated — and have documented the increasingly desperate efforts of the deficit scolds to keep fear alive. Today,... I’d like to talk about a different but related kind of desperation: the frantic effort to find some example, somewhere, of austerity policies that succeeded. For the advocates of fiscal austerity — the austerians — made promises as well as threats: austerity, they claimed, would both avert crisis and lead to prosperity.
And let nobody accuse the austerians of lacking a sense of romance; in fact, they’ve spent years looking for Mr. Goodpain.
The search began with a passionate fling between the austerians and the Republic of Ireland, which turned to harsh spending cuts soon after its real estate bubble burst, and which for a while was held up as the ultimate exemplar of economic virtue. ... Since then, every uptick in the Irish economy has been hailed as proof that the nation is recovering — but as of last month the unemployment rate was 14.6 percent...
After Ireland came Britain... Unlike Ireland, Britain had no particular need to adopt austerity... Nonetheless, the government of Prime Minister David Cameron insisted ... that it would actually boost the economy by inspiring confidence. What actually happened was an economic stall. ...
At this point, you might have expected austerity advocates to consider the possibility that there was something wrong with their analysis... But no. They went looking for new heroes and found them in the small Baltic nations, Latvia in particular... Latvians,... however,... have only regained part of the lost ground..., and the unemployment rate is still 14 percent. If this is the austerians’ idea of an economic miracle, they truly are the children of a lesser god.
Oh, and if we’re going to invoke the experience of small nations as evidence about what economic policies work, let’s not forget the true economic miracle that is Iceland — a nation that was at ground zero of the financial crisis, but which, thanks to its embrace of unorthodox policies, has almost fully recovered.
So what do we learn from the rather pathetic search for austerity success stories? We learn that the doctrine that has dominated elite economic discourse for the past three years is wrong on all fronts. ... It’s time to put the deficit obsession aside and get back to dealing with the real problem — namely, unacceptably high unemployment.

 

    Posted by on Friday, February 1, 2013 at 12:24 AM in Economics, Fiscal Policy | Permalink  Comments (67)

          


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