Paul Krugman explains how U.S. politicians made a disastrous policy mistake a decade ago — and they should have known better
The Great Recession was the worst economic crisis in the United States since the 1929 Wall Street crash and the Great Depression, but politically, things were much different in the first half of the 2010s than they were in the 1930s. While President Franklin Delano Roosevelt was a liberal and oversaw the sweeping reforms of the New Deal, President Barack Obama was more of a centrist — and the red wave of 2010 found far-right Republicans (including Tea Party extremists) achieving a majority in the U.S. House of Representatives and pushing an agenda of severe austerity. Liberal economist Paul Krugman, in a column published on the penultimate day of 2019, looks back on the austerity policies enacted in both the United States and Europe during the first half of the 2010s and stresses that they inflicted long-term damage economically as well as politically.
“A decade ago,” Krugman explains, “the world was living in the aftermath of the worst economic crisis since the 1930s. Financial markets had stabilized, but the real economy was still in terrible shape, with around 40 million European and North American workers unemployed. Fortunately, economists had learned a lot from the experience of the Great Depression. In particular, they knew that fiscal austerity — slashing government spending in an attempt to balance the budget — is a really bad idea in a depressed economy.”
Krugman quickly adds, however, that an abundance of politicians in the U.S. as well as the European Union (EU) didn’t understand economics and responded to the Great Recession with austerity programs.
“Unfortunately,” Krugman laments, “policymakers on both sides of the Atlantic spent the first half of the 2010s doing exactly what both theory and history told them not to do. And this wrong turn on policy cast a long shadow, economically and politically. In particular, the deficit obsession of 2010-2015 helped set the stage for the current crisis of democracy.”
Back in 2010, Greece was in a severe depression — and budget hawks insisted that the U.S. would suffer the same fate without austerity. But Krugman stresses that the U.S. “didn’t turn into Greece, and countries that imposed harsh austerity suffered severe economic downturns.” Politicians, Krugman notes, went “all in for austerity when they should have been fighting unemployment.”
“Here in the United States, Republicans went through the entire Obama era claiming to be deeply concerned about budget deficits, forcing the country into years of spending cuts that slowed economic recovery,” Krugman observes. “The moment Donald Trump moved into the White House, all those supposed concerns vanished, vindicating those of us who argued from the beginning that Republicans who posed as deficit hawks were phonies.”
The 66-year-old economist goes on to address the “many lasting scars” that austerity inflicted.
“There are multiple explanations for the populist rage that has put democracy at risk across the western world, but the side effects of austerity rank high on the list,” Krugman observes. “In Eastern Europe, white nationalist parties came to power after center-left governments alienated the working class by letting themselves be talked or bullied into austerity policies. In Britain, support for right-wing extremists is strongest in regions hit hardest by fiscal austerity. And would we have Trump if years of wrongheaded austerity hadn’t delayed economic recovery under Barack Obama?”
Although Krugman has been a blistering critic of President Donald Trump, he concludes his column by stressing that Trumpism is, in part, a response to the economic pain inflicted by austerity.
“It’s a lot harder to denounce a scam artist when you yourself spent years promoting destructive policies simply because they sounded serious,” Krugman explains. “In short, we’re in the mess we’re in largely because of the wrong turn policy took a decade ago.”