Paul Krugman on Why Economic Nonsense Has Such Staying Power

Some countries never learn. In Europe and in Britain, it seems, the deficit hawks are still controlling the economic story and are continuing to do great harm. With an election looming in Britain in six weeks, Paul Krugman reports in his column Monday that the narrative is still being "dominated by a misleading fixation on budget deficits," and the media is very much complicit in perpetuating the bogus analysis, routinely reporting as fact "propositions that are contentious if not just plain wrong."

It's a very bad combo—bad analysis, bad media story. And in this regard at least, the U.S. seems to have come to its senses quicker than the Brits, (not Republicans, of course, but nevermind.) Krugman: 

The narrative I’m talking about goes like this: In the years before the financial crisis, the British government borrowed irresponsibly, so that the country was living far beyond its means. As a result, by 2010 Britain was at imminent risk of a Greek-style crisis; austerity policies, slashing spending in particular, were essential. And this turn to austerity is vindicated by Britain’s low borrowing costs, coupled with the fact that the economy, after several rough years, is now growing quite quickly.

Simon Wren-Lewis of Oxford University has dubbed this narrative “mediamacro.” As his coinage suggests, this is what you hear all the time on TV and read in British newspapers, presented not as the view of one side of the political debate but as simple fact.

Yet none of it is true.

One way to know that it is false? Under the supposedly profligate Labour government in Britain before the current Conservative one, inflation was still low. Also, it is ridiculous to say Britain was ever at risk of a Greek-style crisis. In fact, it's just plain ignorant, according to Krugman. "Unlike Greece, Britain has retained its own currency and borrows in that currency — and no country fitting this description has experienced that kind of crisis," he writes. "Consider the case of Japan, which has far bigger debt and deficits than Britain ever did yet can currently borrow long-term at an interest rate of just 0.32 percent."

And yet, austerity hawks are claiming that austerity has been vindicated. How so? Where's the growth? (Remember growth? Conservative capitalists used to love that.) Krugman:

When the current British government came to power in 2010, it imposed harsh austerity — and the British economy, which had been recovering from the 2008 slump, soon began slumping again. In response, Prime Minister David Cameron’s government backed off, putting plans for further austerity on hold (but without admitting that it was doing any such thing). And growth resumed.

If this counts as a policy success, why not try repeatedly hitting yourself in the face for a few minutes? After all, it will feel great when you stop.

Krugman lays the blame for the ongoing asuterity fixation firmly at the feet of the British media. After all, there are always bad ideas floating around. But in this case, the British media has ignored what serious economists have to say, and just perpetuated the false story. And just to end on a slightly feel-better note (and a bit of a plug for a Times product: "In the United States we have mainly gotten past that, for a variety of reasons," Krugman writes, "among them, I suspect, the rise of analytical journalism, in places like The Times’s The Upshot."

So that's something, at least.