“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””
Anonymous
You are aware, of course, that the slight rise in UK public spending you mention factors in a massive rise in interest payments?
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Caused by a massive rise in debt. Debt is the problem, all of it. That means you don’t get services, you don’t get investment, you get a small percentage of your taxes going on the things you need.
Anonymous
print money to help inflate the debt away
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It doesn’t work. The fixed rate debt is a fraction of the total debt. Most debt is inflation linked and you can’t inflate your way out of it.
Otherwise, pretty much spot on.
When it comes to tax cuts, there are two priorities.
1. The moral issue of taxing the poor
2. Making sure tax cuts get invested and not spent on temporary pleasures.
Michael Fogg
Krugman: “Keynesians have been completely right, Austerians utterly wrong” http://t.co/H3LB0z4T by @ShamikDas #DoubleDip #economy #recession
Stephen Wigmore
I’m not the one stalking round the internet making claims that people are “completely wrong” without bothering to publish any actually relevant evidence.
And if you actually look at those graphs you would see UK and US spending, even having stripped out interest payments, both increasing gently, with, if anything, US spending increasing less slowly than UK spending.
Albert Spangler
Why? What does that have to do with failure of ‘neoliberal economics’ to promote growth? Where are the examples of monetarist policies countering recessions?
Even if it was relevant, the percentage of debt to GDP the country currently has it nothing compared to the 1940’s/50’s, and they actually managed to eliminate the deficit and massively reduce the debt %. Yet somehow we have utterly failed at this despite the repeated lessons of history.
The only reason you would think this not possible is if you don’t believe the UK can grow its economy any more.
My tinfoil hat hypothesis is that perhaps certain vested interests *want* this to happen, deliberately causing recessions and then claiming “we haven’t cut enough! We must cut more” until nothing is left but some kind of Somalia like wilderness where those who hoard wealth build up their own little fiefdoms in endless fields of miserable disposable labour while telling us all how great we have it with their exclusive media control. Silly conjecture, I know.