Krugman: Coalition is “bleeding” Britain dry

Paul Krugman on why there isn't much hope that austerity will help Britain.

It's amazing how a few labels make an old woodcut into a political cartoon. From L-R: Osborne, UK and Alexander.

Economics Nobel Laureate Paul Krugman hit out with some devastating criticism of the chancellor’s autumn statement yesterday:

When the Cameron government came in, it was fully invested in the doctrine of expansionary austerity. Officials told everyone to read the Alesina/Ardagna paper (which is succinctly criticized by Christy Romer (pdf)), cited Ireland as a success story, and in general assured everyone that they could call the confidence fairy from the vasty deep.

Now it turns out that contractionary policy is contractionary after all. As a result, despite all the austerity, deficits remain high. So what is to be done? More austerity!

Underlying the drive for even more austerity is the belief that the underlying economic potential of the British economy has fallen sharply, and will grow only slowly from now on. But why? There’s a discussion in the Office for Budget Responsibility report, p. 54, that basically throws up its hands — hey, these things happen after financial crises, it says, and cites an IMF report(pdf).

So I wonder: did they read the abstract of that report? Because here’s what it says:

Short-run fiscal and monetary stimulus is associated with smaller medium-run deviations of output and growth from the precrisis trend.

That is, history says that a financial crisis reduces long-run growth potential if policymakers don’t limit the short-run damage it does [italics his].

And yet what’s happening in Britain now is that depressed estimates of long-run potential are being used to justify more austerity, which will depress the economy even further in the short run, leading to further depression of long-run potential, leading to …

It really is just like a medieval doctor bleeding his patient, observing that the patient is getting sicker, not better, and deciding that this calls for even more bleeding.

And the truly awful thing is that Cameron and Osborne are so deeply identified with the austerity doctrine that they can’t change course without effectively destroying themselves politically.

See also:

Osborne is perilously close to failing to cut borrowing at allCormac Hollingsworth, December 1st 2011

Why are lollipop ladies paying to cancel the bankers’ bonus tax?Brendan Barber, November 30th 2011

Osborne proved the doommongers wrong – the economy is even worse than we predictedGeorge Irvin, November 30th 2011

Fast spending cuts push economy from fastest quarterly growth for a decade towards zeroCormac Hollingsworth, November 1st 2011

For every extra £4 spending is cut, it only cuts borrowing an extra 75pCormac Hollingsworth, October 18th 2011

  • Pingback: Alex Braithwaite()

  • Pingback: Alan199()

  • Pingback: Jamal Barry()

  • Pingback: Michael()

  • Pingback: Lesley Farrington()

  • Pingback: Political Planet()

  • Pingback: JamieSW()

  • Pingback: Philip Challinor()

  • Anonymous

    No. The deficit is bleeding Britain dry.

    The government is spending too much. It’s spending 25% more than it takes in taxation.

    At the same time its Bernie Maddoffing the debts off the books onto future generations, who won’t be able to pay either.

    That’s the warning for the public sector. You’re pension is only as good as the ability of the private sector being able to pay it, and more importantly willing to pay it. They may decide its not on.

    After all, who wants to pay 1,300 bn and get NO SERVICES in return.

  • Anonymous

    I think of it as a starving man eating his own body parts to make himself feel better.

  • Pingback: Mike Nodding()

  • Pingback: Christian Wilcox()

  • Pingback: Christian Wilcox()

  • Pingback: Łukasz Dulęba()

  • Pingback: react()

  • Pingback: Chris Tully()

  • Pingback: Pamela Heywood()

  • Pingback: Sue()

  • Newsbot9

    And your employer might decide not to pay you. Same logic. Same attack on contacts. I hope you get what you wish on others.

  • Anonymous

    Well, they may do.

    However, when it comes to the private sector and their retirement, they aren’t relying on money being extracted from other people. The private sector wants to be able to use its money for its retirement.

    Now there are issues with company schemes, because again its pooled, and we’ve seen what happens when people raid pension funds like Maxwell. It’s not good news for the pensioners.

    It’s exactly the same problem with the government. It’s going to raid all those extra contributions from the civil servants and spend them. It doesn’t make the civil servant’s pension any more safe than now. So for that civil servant on a 10K pa pension, which costs the taxpayer 350,000 to provide, they are being forced to run a massive risk, because there are no assets.

    I don’t wish it on anyone by the way, its just the reality. It’s a Ponzi, and with any Ponzi you have to look at who are the crooks. It’s politicians and government.

    So lets give an analogy. If I suffer a burglary, can I rob you to get back what I’ve lost? Is that fair?

  • Newsbot9

    Yes, higher rate tax payers claiming pension relief IS relying on extracting money from other people. Again, where’s your opposition to that?

    You’re SUPPORTING making it a SCAM played PURELY on the workers. Your HATRED for the workers is shocking. Can’t have any pensions in the 99%, 1%er

    And that’s not an analogy, it’s a non-sequitur.
    You ARE supporting robbing people, and whining when people point this out, thief.

  • Anonymous

    1. It’s not tax relief it is tax deferral

    2. It is not extracting money fro others, it is extracting money from the worker.

    What the government has done is extract money from workers for their pensions, and spent it.

    Now those pensions are due, it is reneging on that contract (social contract, legal contract, promise what ever you want to call it).

    I’m not robbing anyone. I’m pointing out that the biggest thief is the government.

    It’s robbing civil servants of their promise. It’s robbing people of money to pay even the reduced pension to the civil servants. It’s not providing services for the money it takes.

    You need to get it into your head, that civil servants can be done out of their pensions and be victims AND the tax payer can be robbed at the same time to pay that money, and get no services as a consequence.

    Both are true. Both tax payer and civil servant can be victims. However, I fail to see why the minority which is civil servants should get the majority of the pie at the expense of the majority, most of whom are poor.

    There are lots of people on minimum wage pay 2.5K in employment taxes to pay for the 350,000 pounds for a 10K civil service pension.

    The truth in this case is unpleasant. You’ve then gone on the person attack because the truth is so uncomfortable you can’t take it in and have gone into denial.

  • Pingback: Balls repeats his conference message – but the circumstances have changed | Left Foot Forward()

  • Pingback: Paul Crowley()

  • Pingback: Isobel waby()

  • Pingback: Graham Galloway()

  • Pingback: Denny()

  • Pingback: Chris Boyle()

  • Pingback: Balls mocks “Panglossian” Osborne over Bullingdon, growth and Boris | Left Foot Forward()

  • Pingback: Laura McN()

  • Pingback: Krugman savages the “austerity debacle” | Left Foot Forward()