“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.”
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134 Responses to “Krugman: “Keynesians have been completely right, Austerians utterly wrong””
tangentreality
a) Private debt is indeed much higher. However, it was more corporate debt that caused the crisis, with banks having large write-downs on mortgage defaults. Quite simply, you solve the problem of bail-outs by not conducting them in the first place. If the banking sector was a diverse, free, open market, rather than a corrupt cartel of massive companies holding the Government to ransom, bail-outs wouldn’t be required.
b) Two immediately spring to mind: the UK in 1979 when Thatcher cut public services and Nigel Lawson cut the top rate of income tax from 80% to 40%. Ken Clarke’s efforts in the 1990s also saw managed reduction in expenditure alongside tax cuts, giving Labour the best economic inheritance in a century. Reagan’s efforts in the US were also similar. Tax cuts result in private sector growth. Simples.
Brian Moylan
Krugman: “Keynesians have been completely right, Austerians utterly wrong” http://t.co/H3LB0z4T by @ShamikDas #DoubleDip #economy #recession
Anonymous
That’s right, spending rises when you use austerity. Well done for highlighting this!
Whining about that now…
jukka
Krugman: “Keynesians have been completely right, Austerians utterly wrong” http://t.co/H3LB0z4T by @ShamikDas #DoubleDip #economy #recession
Anonymous
That’s right, the Tories chose to dismantle much of the social infrastructure – costly, and with ongoing cuts – rather than deal with the deficit. And of course, austerity is itself highly costly.
“root-and-branch reform”
Close the NHS, close public schools, let the poor starve. Heard it all before. Spend billions dismantling ever-more of the mechanisms which made us a modern country.