Paul Krugman: One of the World's Biggest Economic Nightmares Has Ended

Greece has a new leader who should completely ignore the fiscal scolds.

Photo Credit: via YouTube

Fed up with suffering through ill-conceived austerity economics, Greece has overwhelmingly elected a leftist leader who has promised to end this particular brand of punitive, failed policy. His name is Alexis Tsipras; he's leader of the left-wing Syriza coalition, and, as Paul Krugman writes in Monday's column, he is already being warned by various fiscal scolds to behave “responsibly.”

"So how has that responsibility thing worked out so far?" Krugman asks.

Answer: By just about any measure, it's been a disaster and has resulted in a great deal of suffering. Per Krugman:

To understand the political earthquake in Greece, it helps to look at Greece’s May 2010 “standby arrangement” with the International Monetary Fund, under which the so-called troika — the I.M.F., the European Central Bank and the European Commission — extended loans to the country in return for a combination of austerity and reform. It’s a remarkable document, in the worst way. The troika, while pretending to be hardheaded and realistic, was peddling an economic fantasy. And the Greek people have been paying the price for those elite delusions.

You see, the economic projections that accompanied the standby arrangement assumed that Greece could impose harsh austerity with little effect on growth and employment. Greece was already in recession when the deal was reached, but the projections assumed that this downturn would end soon — that there would be only a small contraction in 2011, and that by 2012 Greece would be recovering. Unemployment, the projections conceded, would rise substantially, from 9.4 percent in 2009 to almost 15 percent in 2012, but would then begin coming down fairly quickly.

What actually transpired was an economic and human nightmare. Far from ending in 2011, the Greek recession gathered momentum. Greece didn’t hit the bottom until 2014, and by that point it had experienced a full-fledged depression, with overall unemployment rising to 28 percent and youth unemployment rising to almost 60 percent. And the recovery now underway, such as it is, is barely visible, offering no prospect of returning to precrisis living standards for the foreseeable future.

Greece made drastic cuts in public services, wages for government employees and benefits—all in all a 20 percent cut in public spending since 2010, Krugman says. 

All that "responsibility" has only worsened Greece's debt, by sending its economy into a deeper trough of depression. "If the troika had been truly realistic, it would have acknowledged that it was demanding the impossible," Krugman writes. "Two years after the Greek program began, the I.M.F. looked for historical examples where Greek-type programs, attempts to pay down debt through austerity without major debt relief or inflation, had been successful. It didn’t find any."

That should tell you something, shouldn't it? But fiscal and austerity scolds just stick to their guns, no matter what the facts and evidence points to. Meanwhile, Krugman and the rest of us will be rooting for Tsipras and for Greece, and for a final death blow to this devastating economic philosophy.


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