Krugman: How Europe's Leaders Tanked its Economy Through Moralizing and the Austerity Fantasy
Krugman panned out to wide focus yesterday in his latest brain-banging column: he posits that the dire economic outlook across Europe was worsened through bad policy and beliefs of its leaders:
Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.
Now the results are in — and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending.
Obviously, Krugman's analysis is especially urgent for America, as conservatives in Washington push to follow Europe's lead—in the direction of a similar, devastating cliff. Of course he brings it on home with a simple solution that could keep the US from descending further into economic crisis: stop trumping up austerity when the past tells us it simply won't work. "All the federal government needs to do to give the economy a big boost," he writes, "is provide aid to lower-level governments, allowing these governments to rehire the hundreds of thousands of schoolteachers they have laid off and restart the building and maintenance projects they have canceled." Read the full column here.