Paul Krugman: GOP Is Determined to Bring Greek-Style Economic Crisis Here

Paul Krugman wants to explain this one more time, people. Greece is indeed a cautionary tale, he writes in Friday's column, just not the cautionary tale that GOP budget hawks would have you believe. In fact, if we learn the wrong lesson from Greece, we could very well end up like it. And there is some determination on the right flank of American politics to ensure that happens.


Despite its tiny size and faraway location, "Greece has nonetheless played an outsized role in U.S. political debate, as a symbol of the terrible things that will supposedly happen — any day now — unless we stop helping the less fortunate and printing money to fight unemployment," Krugman writes. "And Greece does indeed offer important lessons to the rest of us. But they’re not the lessons you think, and the people most likely to deliver a Greek-style economic disaster here in America are the very people who love to use Greece as a boogeyman."

The folks using Greece as the boogeyman are the same people who have been wrong about just about everything, Krugman explains. They are the ones who have consistently said that easing money during the recession, and failing to implement more austerity measures here will lead to runaway inflation. They've been saying that since 2011. Has not happened.

Greece did indeed run up too much debt (with a lot of help from irresponsible lenders). But its debt, while high, wasn’t that high by historical standards. What turned Greek debt troubles into catastrophe was Greece’s inability, thanks to the euro, to do what countries with large debts usually do: impose fiscal austerity, yes, but offset it with easy money.

Consider Greece’s situation at the end of 2009, when its debt crisis burst into the open. At that point Greek government debt was near 130 percent of gross domestic product, which is definitely a big number. But it’s by no means unprecedented. As it happens, Greece’s debt ratio in 2009 was about the same as America’s in 1946, just after the war. And Britain’s debt ratio in 1946 was twice as high.

Today, however, Greek debt is over 170 percent of G.D.P. and still rising. Is that because Greece just kept on borrowing? Actually, no — Greek debt is up only 6 percent since 2009, although that’s partly because it received some debt relief in 2012. The main point, however, is that the ratio of debt to G.D.P. is up because G.D.P. is down by more than 20 percent. And why is GDP down? Largely because of the austerity measures Greece’s creditors forced it to impose.

Look, sometimes austerity works. Krugman cites Canada in the '90s as an example. The difference is that Canada cut spending and eased money at the same time. That is the option that Greece does not have. "Greece, unfortunately, no longer had its own currency when it was forced into drastic fiscal retrenchment," Krugman writes. "The result was an economic implosion that ended up making the debt problem even worse. Greece’s formula for disaster, in other words, didn’t just involve austerity; it involved the toxic combination of austerity with hard money."

Do Paul Ryan and his cronies understand this? Doubtful.

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