On last night’s Newsnight, Nobel laureate Paul Krugman took apart the arguments of the austerians, clearly, forensically, brilliantly.
Nobel laureate Paul Krugman last night took apart the arguments of the austerians, clearly, forensically, brilliantly. He was debating Conservative donor Jon Moulton and Tory backbencher Andrea Leadsom on the BBC’s Newsnight.
• Krugman savages the “austerity debacle” 30 Jan 2012
• Krugman: Coalition is “bleeding” Britain dry 1 Dec 2011
And now read Professor Krugman’s comments in full, memorise them, and use them against those cuts-lusting, double-dip denying austerians:
“We’ve now had about two years of experience with austerity here and elsewhere, and what we’re seeing first of all is that austerity really does contract the economy, that the notion that it would inspire business confidence and lead to expansion not contraction has been decisively proved wrong by experience all across Europe, including here but even more so on the continent.
“Secondly there’s now growing evidence austerity in these conditions doesn’t even work in fiscal terms, because it shrinks the economy now and also shrinks the economy in future, it hurts the economy’s long run potential, which reduces future revenues, which worsens the long-run budget position. I’ve used the analogy, it’s like medieval doctors, who thought that you could treat a sick patient by bleeding, and the patient of course got sicker, so they said let’s bleed even more and that’s essentially what’s happening here.
“We have a debt problem which is real but the treatment is making things worse, even in purely fiscal terms.
“If you try to have a situation in which everyone is trying to slash at the same time, in which the private sector is trying to slash spending because it feels it has too much debt, and in which then the government is also saying well we have too much debt so we’re all trying to slash then we run up against the fundamental fact that we are not a household we are an economy, and that your spending is my income, and my spending is your income, and if we are both trying to do this slashing at the same time, what we end up doing is producing a depression that leaves us worse off.
“[As 30s economist Irving Fisher, Keynes’s contemporary, said] in times like this, when everyone tries to pay down debt at the same time, what happens is, the more people trid to save, the more they owed. We’re actually worsening the debt problem by not having the government act as the fly-wheel, the stabilising factor, when the private sector is engaged in this ferocious deleveraging…
“I certainly look at the US and it’s true here as well, if I think about the future generation, I think that the crime we are committing against the next generation is not that we’re going to leave them with more debt, that’s a venial sin, the crime is that all of these students are graduating from college with no job prospects, are graduating from college with debts that they have incurred to get an expensive education and then there are no jobs – that damage that we are inflicting, the damage we are inflicting on the next generation by not having jobs for them, which is the result of misguided austerity right now, that is the great sin…
“The average young person is not going to start a business, there has to be an expanding economy which is not happening, and is not happening because we’re not providing the neccessary support, and by the way, I think you [Andrea Leadsom], you’ve just given me confirmation of something that people like me tend to say which is that actually none of this is at all about fiscal responsibility, it’s all about exploiting the current situation to pursue an ideological goal of a smaller state, and, we can argue about whether the British state is too large, but look at Sweden, which is actually weathering this very well with a much larger state than you have, that’s a great diversion, that’s suggesting that you’re not actually sincere, it’s not really the budget deficit that’s the concern, you’re looking for a way to exploit this debt, deficit situation… You’re mingling together concepts that are really quite separate…
“You’re totally missing the point of what it means to be in a depression. We are in a depression where there are vast numbers of workers idle, who want to work, there’s vast amounts of potential capital which is going nowhere, because there’s no demand, so, at this point in time, the private and the public sector are not competing for resources, there are these unemployed resources and the point is to put them to work.
“Now, give me a recovery in the UK or in the US and I will become a fiscal hawk, I will be very happy to talk about finding ways to economise on government spending, finding ways to raise more revenue, which I think at least in the US has to be part of the solution, but not now, not under these conditions…
“We have survey evidence from the United States about what it is that is holding private businesses back, and overwhelmingly, the answer is lack of sales, there just is not enough demand, constraints on capital are not an issue, they would like to have more skilled workers, but no more so than usual, issues about financing are a small issue, concerns about future government regulations, well they always complain about that but no more than usual, what has changed is there’s no demand, there isn’t a market there, and that’s what these austerity policies are making worse, they are actually inhibiting the private sector as well as the private…
“Every one of those success stories turns out to involve, either, a situation where interest rates were quite high to start with so you can bring them down, or a situation where you have a large currency devaluation, which is not going to work now because you have to have some prosperous economy to devalue against, and there’s nobody out there right now. Estonia? No, it just doesn’t fit the story at all.”