Paul Krugman has attacked the “austerity debacle” taking place in Britain, pointing out the UK is "nowhere close" to regaining ground lost during the recession.
Economics Nobel Laureate Paul Krugman has attacked the “austerity debacle” taking place in Britain and elsewhere, pointing out the UK is “nowhere close” to regaining ground lost during the recession, with the country doing much worse than it had after the 1930s Depression and 1973, 79 and 90 recessions.
In his latest NY Times column, he notes:
Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart [see Chart 1 below] comparing the current slump with past recessions and recoveries.
It turns out that by one important measure – changes in real G.D.P. since the recession began – Britain is doing worse this time than it did during the Great Depression.
Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.
Nor is Britain unique. Italy is also doing worse than it did in the 1930s – and with Spain clearly headed for a double-dip recession, that makes three of Europe’s big five economies members of the worse-than club. Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy.
And it’s a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.
Chart 1:
He goes on to take aim at British economic policy in particular, accusing the coalition of resorting to “ideologically convenient wishful thinking”, and throwing “hard-won knowledge” gleaned over the past 80 years “out the window”, mocking the idea of expansionary fiscal contraction:
Haven’t we learned a lot about economic management over the last 80 years? Yes, we have – but in Britain and elsewhere, the policy elite decided to throw that hard-won knowledge out the window, and rely on ideologically convenient wishful thinking instead.
Britain, in particular, was supposed to be a showcase for “expansionary austerity,” the notion that instead of increasing government spending to fight recessions, you should slash spending instead – and that this would lead to faster economic growth.
“Those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong,” declared David Cameron, Britain’s prime minister. “You cannot put off the first in order to promote the second.” How could the economy thrive when unemployment was already high, and government policies were directly reducing employment even further?
As Krugman concludes:
The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist – or for that matter any undergraduate who had read Paul Samuelson’s textbook “Economics” – could have told you that austerity in the face of depression was a very bad idea.
But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.
See also:
• George Osborne is the downgraded chancellor of a deflationary government – William Bain MP, December 8th 2011
• Balls mocks “Panglossian” Osborne over Bullingdon, growth and Boris – Shamik Das, December 7th 2011
• Krugman: Coalition is “bleeding” Britain dry – Alex Hern, December 1st 2011
• Ex-Cabinet Office chief economist: slower cuts are “common sense” – Will Straw, August 25th 2011
• Coalition cuts are deeper and faster than Tea Party’s – Will Straw, August 2nd 2011
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33 Responses to “Krugman savages the “austerity debacle””
Chriskitcher
What I can’t understand is why is Browns and Labours fault when other countries are facing the same problems?
Chriskitcher
What I can’t understand is why is Browns and Labours fault when other countries are facing the same problems?
Oxford Kevin
Hi Chris,
Take for example the USA which was probably the biggest contributor to the financial crisis. Two of the biggest financial players in the the US who got into massive problems were the Bank of America (BoA) and the American Insurance Group (AIG). They needed to use their UK offices to create the complex toxic financial products which were behind a lot of the problems because US financial regulation prohibited these activities. The lax UK banking regulations made this possible & have a lot to answer for and it was the reason the US was so pissed off with the UK as the financial crisis first took hold. The liabilities the US Gov took to save BoA and AIG were absolutely massive because of this.
BoA and AIG, took large numbers of mortgages and mixed them up, so it was difficult to track which were the sub prime ones and which weren’t in any particular product. Then getting the products classified as high rated products (AA, AA+ etc.) for investors like pension funds to put their money into made far more money available for building the property boom than would have otherwise been possible.
Does that make sense?
David Dubost
Krugman savages the “austerity debacle” http://t.co/Ptzw4lB9
Michael
Krugman savages the “austerity debacle” I Shamik Das – http://t.co/lD1JmBSS