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Friday, December 20, 2013

Paul Krugman: Osborne and the Stooges

Austerity in an already depressed economy is a bad idea:

Osborne and the Stooges, by Paul Krugman, Commentary, NY Times: There was, I’m pretty sure, an episode of “The Three Stooges” in which Curly kept banging his head against a wall. When Moe asked him why, he replied, “Because it feels so good when I stop.” ... But I never imagined that Curly’s logic would one day become the main rationale that senior finance officials use to defend their disastrous policies.
Some background: In 2010, most of the nation’s wealthy nations, although still deeply depressed in the wake of the financial crisis, turned to fiscal austerity ... to reduce budget deficits that had surged as their economies collapsed. Basic economics said that austerity in an already depressed economy would deepen the depression. But the “austerians,” as many of us began calling them, insisted that spending cuts would lead to economic expansion, because they would improve business confidence.
The result came as close to a controlled experiment as one ever gets in macroeconomics. Three years went by, and the confidence fairy never made an appearance. ... The depressing effect of austerity in a slump is, in short, as clear a story as anything in the annals of economic history. But the austerians were never going to admit their error. ... And now they’ve seized on the latest data to claim vindication, after all. You see, some austerity countries have started growing again. ...
Perhaps the most brazen example is George Osborne, Britain’s chancellor of the Exchequer, and the prime mover behind his country’s austerity agenda. No sooner had positive growth numbers appeared than Mr. Osborne declared that “Those in favor of a Plan B” — that is, an alternative to austerity — “have lost the argument.”
O.K., let’s think about this... Economies do tend to grow unless they keep being hit by adverse shocks. It’s not surprising, then, that the British economy eventually picked up...
But is this a vindication of his austerity policies? Only if you accept Three Stooges logic, in which it makes sense to keep banging your head against a wall because it feels good when you stop.
Now, I’m well aware that the austerians may win political points all the same. Political scientists tell us that voters are myopic, that they judge leaders based on economic growth in the year or so before an election...
But that’s politics. When it comes to economics, there’s only one possible answer to the absurd triumphalism of the austerians: Nyuk. Nyuk. Nyuk.

    Posted by on Friday, December 20, 2013 at 01:17 AM Permalink  Comments (59)

          


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