“The results are in: Keynesians have been completely right, Austerians utterly wrong - at vast human cost” - so wrote Nobel laureate Paul Krugman today.
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“The results are in: Keynesians have been completely right, Austerians utterly wrong – at vast human cost” – so wrote Nobel prize winning economist Paul Krugman in the New York Times following yesterday’s announcement Britain is in a double-dip recession.
He is, of course, absolutely right; for starters, compare our own austerity-driven failure to the fate of the US economy. As Left Foot Forward reported yesterday, the US economy is now 0.8 per cent above its pre-crisis peak, while the UK economy is 4.3 per cent below, as Graph 1 shows.
Graph 1:
Krugman adds:
“It’s important to understand that what we’re seeing isn’t a failure of orthodox economics. Standard economics in this case – that is, economics based on what the profession has learned these past three generations, and for that matter on most textbooks – was the Keynesian position.
“The austerity thing was just invented out of thin air and a few dubious historical examples to serve the prejudices of the elite…
“I wish I could believe that this would really be enough for us to move on and consider what can be done, now that we know that the ideas behind recent policy were all wrong. But that’s wishful thinking, I suppose.
“Nobody ever admits that they were wrong, and Austerian ideas clearly have an emotional and political appeal that is resilient to any and all evidence.”
• Krugman savages the “austerity debacle” 30 Jan 2012
• Krugman: Coalition is “bleeding” Britain dry 1 Dec 2011
• Obama/Cameron love-in comes unstuck over cuts 25 May 2011
• Krugman joins chorus for Tobin tax 30 Nov 2009
• Krugman: balanced budget would be “worst thing for future generations” 29 Sep 2011
And it’s not just progressive economists saying so – some on the right are finally coming round to recognising the insanity of extreme austerity.
The Daily Beast’s Andrew Sullivan writes:
“If austerity kills growth and thereby revenues, the debt problem can worsen. And Britain, remember, isn’t in the eurozone; it has some currency flexibility to ride some of the shocks. Even so, the passage this ship has to pass through to growth and lower debt is getting narrower and the rocks and tides more treacherous.
“The goal of structural fiscal balance within one five-year parliament has already been abandoned in the face of reality.
“As I’ve said before, I have a long record of fiscal hawkishness. I’m a Tory and want them to succeed. But the one time I worry about fiscal retrenchment is in a period of global recession, where premature austerity can hurt, not help.
“The key is to stimulate enough to get the economy moving on its own momentum and then phase in serious long term structural budget cuts and tax reform.”
134 Responses to “Krugman: “Keynesians have been completely right, Austerians utterly wrong””
AB
The graph is also misleading as a basis for comparing the uk and us positions in the simplistic way this article does in relation to the extent to which the two countries have bounced back after the post 2008 trough. From 2003 to 2008, the us had a broadly tax cutting and deregulating government. So the peak of the us economy in 2008 has to be seen in the context of having been achieved by following that type of policy mix. In the uk we had a government which increased regulation and had relatively high taxation and which in a significantly large part grew GDP by public spending. Keynesian stimulus in a boom with an increasing deficit.
So, the impact of cutting public spending in the uk was more dramatic than in the us because the pre-existing peak was so much more dependent on such public spending. The us may have shown that keynesian stimulus works but only because it was carried out after Keynesian boom policies of relative austerity and prudence. The graph for the uk really shows how much of the uk’s boom and peak was artificial and unsustainable.
The line for the euros one would be more interesting if it split out Germany. I’d expect it to then show a much bigger non-German 2008 peak and a much lower recovery. Paralleling the uk position but in a more extreme way. Germany on the other hand would have had flatter growth to 2008, a shallower dip post-crash and a more dramatic rise since.
An honest Keynesian would have to conclude that if we want to have the ability to stimulate growth after a crash we have to be more prudent in boom times. Whether that be through accepting more modest growth by not stimulating it with tax cuts and deregulation (as with Germany) or cutting public spending and tax/regulation (the us) to get more vigorous growth of the private sector economy is the choice. Growing the economy back to where it would have been without the unsustainable and illusory pre-crash stimulus is the real task to get us back to being able to make that choice, but of course that is politically unpalatable even if probably the real success measure.
Anonymous
Hyperbole? No, there are confirmed deaths.
Moreover, you’re refusing to look, because rough sleeping is soaring again.
Slave labour doesn’t require workhouses – and is already back – and denial of treatment is most certainly already here, routine operations are being refused over much of the country for cost reasons. This will get far worse as services fragment, of course.
And I’m sure your planet, where nothing of the sort happens in very pleasant for your type of Feral 1%, but unfortunately for the 99% we’re not privileged enough to live in it.
Anonymous
Totally at odds? No, it’s called reality.
You want “value”, right. And since according your ideology no public service is good, that means closing down all public provision. And you “say” less tax on the lower paid, while pushing up their burden.
Don’t let what you and you party are actually doing get in the way of your propaganda. Or your ranting.
Anonymous
Correct.
So why did you call for it, since it’s absolutely nothing like anything I’ve called for. You don’t have the faintest idea what mutualism is, do you?
Anonymous
If you don’t like the consequences of what you can for, then stop calling for them.
Slash tax? Oh right, no more NI. No more NHS or social services. Fewer restrictions on bad employers. Consequences, all of which you’ll rant on and deny. Never mind that we have less worker protections than anywhere except the US, and our economy is failing.
And because the state is automatically never efficient in your view, it must be abolished. The state’s only good for the moral regulation your party loves so much. And, of course, providing ever more corporate welfare.
I’m sure the state of the trains fills you with glee, for example…