Paul Krugman on why there isn't much hope that austerity will help Britain.
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 all – Cormac 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 predicted – George Irvin, November 30th 2011
• Fast spending cuts push economy from fastest quarterly growth for a decade towards zero – Cormac Hollingsworth, November 1st 2011
• For every extra £4 spending is cut, it only cuts borrowing an extra 75p – Cormac Hollingsworth, October 18th 2011
To reach hundreds of thousands of new readers and to make the biggest impact we can in the next general election, we need to grow our donor base substantially.
That's why in 2024, we are seeking to generate 150 additional regular donors to support Left Foot Forward's work.
We still need another 124 people to donate to hit the target. You can help. Donate today.
31 Responses to “Krugman: Coalition is “bleeding” Britain dry”
Political Planet
Krugman: Coalition is “bleeding” Britain dry: Paul Krugman on why there isn't much hope that austerity will help… http://t.co/3OcpDjkO
JamieSW
READ HERE: Krugman: Coalition is "bleeding" Britain dry: http://t.co/eKPoRrJJ
Philip Challinor
So that's what "red Tory" means http://t.co/LH3WM1pA
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.