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Friday, January 28, 2011

Paul Krugman: Their Own Private Europe

Contrary to claims by Paul Ryan in his response to President Obama's State of the Union address, the experience in Europe "actually refutes the current Republican narrative":

Their Own Private Europe, by Paul Krugman, Commentary, NY Times: President Obama’s State of the Union address was a ho-hum affair. But the official Republican response, from Representative Paul Ryan, was really interesting. And I don’t mean that in a good way.
Mr. Ryan made highly dubious assertions about employment, health care and more. But what caught my eye, when I read the transcript, was what he said about other countries: “...Greece, Ireland, the United Kingdom and other nations in Europe ... didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.”
It’s a good story: Europeans dithered on deficits, and that led to crisis. Unfortunately, while that’s more or less true for Greece, it isn’t at all what happened either in Ireland or in Britain, whose experience actually refutes the current Republican narrative. ...
American conservatives have long had their own private Europe of the imagination... So we shouldn’t be surprised by ... tall tales about European debt problems. Let’s talk about what really happened in Ireland and Britain.
On the eve of the financial crisis, conservatives had nothing but praise for Ireland... Ireland was running a budget surplus, and had one of the lowest debt levels in the advanced world.
So what went wrong? The answer is: out-of-control banks; Irish banks ran wild ... creating a huge property bubble. When the bubble burst, revenue collapsed, causing the deficit to surge, while public debt exploded because the government ended up taking over bank debts. And harsh spending cuts, while they have led to huge job losses, have failed to restore confidence.
The lesson of the Irish debacle, then, is very nearly the opposite of what Mr. Ryan would have us believe. It doesn’t say “cut spending now, or bad things will happen”; it says that balanced budgets won’t protect you from crisis if you don’t effectively regulate your banks... Have I mentioned that Republicans are doing everything they can to undermine financial reform?
What about Britain? Well, contrary to what Mr. Ryan seemed to imply, Britain has not, in fact, suffered a debt crisis. True, David Cameron ... has made a sharp turn toward fiscal austerity. But that was a choice...
And underlying that choice was ... adherence to the same theory offered by Republicans to justify their demand for immediate spending cuts here — the claim that slashing government spending in the face of a depressed economy will actually help growth rather than hurt it.
So how’s that theory looking? Not good..., there’s certainly no sign of the surging private-sector confidence that was supposed to offset the direct effects of eliminating half-a-million government jobs. ...
American conservatives have long used the myth of a failing Europe to argue against progressive policies in America. More recently, they have tried to appropriate Europe’s debt problems on behalf of their own agenda, never mind the fact that events in Europe actually point the other way.
But Mr. Ryan is widely portrayed as an intellectual leader within the G.O.P., with special expertise on matters of debt and deficits. So the revelation that he literally doesn’t know the first thing about the debt crises currently in progress is, as I said, interesting — and not in a good way.

    Posted by on Friday, January 28, 2011 at 12:42 AM in Budget Deficit, Economics, Financial System, Politics, Regulation | Permalink  Comments (80)


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