Krugman: Greece and How Austerity Induces Economic Depression
Paul Krugman has been unfailing on poking holes in every aspect of the austerity argument as a solution for economic recession (um, it isn't), and what's been going on in Greece has been a prime example for him. In this week's column—as Greece defaults on its debt, setting the stage for more hard times to come—Krugman points out that not only have Europe's economic woes been rooted in the private sector, not the public one, but that the concept of tightening the belt has proven fundamentally wrong:
This was not what was supposed to happen. Two years ago, as many policy makers and pundits began calling for a pivot from stimulus to austerity, they promised big gains in return for the pain. “The idea that austerity measures could trigger stagnation is incorrect,” Jean-Claude Trichet, then the president of the European Central Bank, declared in June 2010. Instead, he insisted, fiscal discipline would inspire confidence, and this would lead to economic growth.
And every slight uptick in an austerity economy has been hailed as proof that the policy works. Irish austerity has been proclaimed a success story not once but twice, first in the summer of 2010, then again last fall; each time the supposed good news quickly evaporated.
Meanwhile, he points out that while the GOP continues to argue for austerity measures, they're actually pointing us toward an even deeper sinkhole than we're already in, since we've got more borrowing power (and our own currency) as back-up that we can use. Read the full piece here.