Krugman on "The Austerity Debacle"


It's a must read this morning. He begins his Monday column like this:  

Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart comparing the current slump with past recessions and recoveries. It turns out that by one important measure — changes in real G.D.P. since the recession began — Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.

He immediately notes that Spain and Italy, two more of Europe's big-five economies (the others being Germany and France) are also doing worse than the 1930s.  

When I read that, I immediately made another connection - because in the 1930s, both Italy and Spain turned Fascist.

Krugman considers what has happened "a stunning failure of policy" that unfortunately does not seem to be getting through to many policy makers in this country.

Krugman recapitulates Britain's experience with the Great Depression -  which was milder than in the US, despite an unfortunate return to the Gold standard (are you listening Ron Paul?).  Yet despite that Britain now seems in worse economic shape than before.  Krugman notes those who have praised David Cameron in Britain's approach, including the late David Broder who urged Obama to "do a Cameron" which fortunately for us did not happen.  Broder also urged "a radical rollback of the welfare state" which unfortunately does seem to be at least partially on the table with the current administration.

Krugman reminds us that while we have not YET seen all-out austerity in the Federal government,

state and local governments, which must run more or less balanced budgets, have slashed spending and employment as federal aid runs out — and this has been a major drag on the overall economy. Without those spending cuts, we might already have been on the road to self-sustaining growth; as it is, recovery still hangs in the balance.  It not only hangs in the balance, but could be pulled down by what happens in Europe, which is in my mind the only threat to the President's reelection - a downturn in our so-far weak economic recovery as a result of events overseas.

I am a local government employee, whose pension is run at the state level.  I have seen the impact of austerity at both state and local levels.  Our class sizes continue to grow.  We are asked to contribute ever more to our pensions because the state was not previously funding the share its own actuaries told it to do.  Our health insurance skyrockets.   We have had no pay nor step increases in several years, and many of us have lost stipend that were a substantial portion of our incomes, in some cases more than 10%.

Without the American Recovery and Reinvestment Act (ARRA, aka the stimulus), things would have been far worse, even though ARRA was far too small.  It was big enough to prevent total disaster, but not big enough to maintain the level of demand necessary to fuel a complete recovery.  Meanwhile we continued to spend on two wars without requiring those most able to afford it to pay for the cost of government from which in many cases they were profiting.  

Some of this is basic economics.  Krugman is a Nobel laureate in economics.   The first winner of that honor was the late Paul Samuelson of MIT, whose textbook was the standard for many of an earlier time, including me.  Thus Krugman's final paragraph really struck home, at least for me:  

The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist — or for that matter any undergraduate who had read Paul Samuelson’s textbook “Economics” — could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.

their willful amnesia - we are seeing a continued shift of wealth from those who truly create it by their labor to those whose participation in the economy is mainly through finance and cronyism.  

We avoided a depression, for which we should all be grateful.

We still face the possibility of another recession, one whose impact upon many would not be much different than a depression - few people have the resources to survive another severe recession.

The fear of various kinds of totalitarian control, an issue that Krugman does not address, seem very real to many of us.  The combination of those with great wealth taking over governments and economies seems to be reminiscent of some of what we saw happen around the world in the 1930s, fueled in part by resentment and the inability or unwillingness of some governments to truly address the needs of their people.  Historically, Britain's depression was mild enough compared to others to have avoided the trend of the 1930s.  In the US we were lucky to have an FDR whose actions may well have prevented something happening here -  remember, we had both large groups sympathetic to likes of Hitler and a corporatist effort organized by Vanderbilt to seize power that failed primarily because the person they approached to lead the effort, two-time Medal of Honor winner Smedley Butler was a real patriot and turned them down.  

Krugman is absolutely right on the economics of what are facing.  The further issue of the political impact is something that should concern us all, especially given the precedent of this administration increasingly walking away from the guarantees of liberty we are supposed to have in the Constitution and the Bill of Rights.

Writing this is not exactly how I planned to begin my work week.  

I read the Krugman.

I knew others should as well.

And I felt like adding my own thoughts, however incoherent they might be.

Have a nice day??  Is that really still possible?



DailyKos / By Teacherken

Posted at January 30, 2012, 2:34am

Sign Up!
Get AlterNet's Daily Newsletter in Your Inbox
+ sign up for additional lists
Select additional lists by selecting the checkboxes below before clicking Subscribe:
Election 2018