Krugman: Coalition is “bleeding” Britain dry

Green Politics

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

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31 Responses to “Krugman: Coalition is “bleeding” Britain dry”

  1. 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.

  2. 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.

  3. Balls repeats his conference message – but the circumstances have changed | Left Foot Forward

    […] Krugman: Coalition is “bleeding” Britain dry – Alex Hern, December 1st […]

  4. Paul Crowley

    like a doctor bleeding his patient, observing the patient is getting sicker, deciding this calls for more bleeding. http://t.co/p6lLB0Ng

  5. Isobel waby

    .@EdBallsMP cites Krugman; here's what he said: http://t.co/KUHz4BZS "It really is just like a medieval doctor bleeding his patient"

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