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Tuesday, September 24, 2013

What's It All About Then?: The Real Reason for the Fight over the Debt Limit

Two from Paul Krugman. The first echoes the point I make in my column today about the attempt to use fear over the debt (and hence the need for austerity) as an excuse to dismantle the welfare state:

What’s It All About Then: Simon Wren-Lewis writes with feeling about the “austerity deception“; what sets him off is a post that characterizes the whole austerity debate as being about “big-state” versus “small-state” people.
Wren-Lewis’s point is that only one side of the debate saw it that way. Opponents of austerity in a depressed economy opposed it because they believed that this would worsen the depression — and they were right.
Proponents of austerity, however, were lying about their motives. Strong words, but if you look at their recent reactions it becomes clear that all the claims about expansionary austerity, 90 percent cliffs and all that were just excuses for an agenda of dismantling the welfare state. ...

But I think growing inequality is a big driving force behind this effort.

And since I've complained in past columns that fiscal policy has not received enough attention (particularly how bad it's been), it's nice to see this:

The Depressed Economy Is All About Austerity: Right now the official unemployment rate is 7.3 percent. That’s bad, and many people — myself included — think it understates the true badness of the situation. ...
But we’re clearly still well below potential. And we’ve also had exactly the wrong fiscal policy given that reality plus the zero lower bound on interest rates, with unprecedented austerity. So, how much of our depressed economy can be explained by the bad fiscal policy?
To a first approximation, all of it. By that I mean that to have something that would arguably look like full employment, at this point we wouldn’t need a continuation of actual stimulus; all we’d need is for government spending to have grown normally, instead of shrinking. ...[does calculations to show this]...
The austerians have a lot to answer for.

    Posted by on Tuesday, September 24, 2013 at 10:35 AM in Economics, Fiscal Policy, Politics | Permalink  Comments (48)

          


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