Krugman: Government deficits are a consequence of the crisis, not a cause

This country is relying too heavily on pre-crisis policy ideas that have since been disproved.

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This country is relying too heavily on pre-crisis policy ideas that have since been disproved.

krugmanEsteemed economist Paul Krugman has called for an evidence-based analysis of the country’s economic problems and a change in public thinking.

He believes the flawed, outdated ideas of the 2000s are being recycled and wrongly supporting austere fiscal policies in many countries.

Krugman writes in the FT:

More than four years after the financial crisis began, the world’s major advanced economies remain deeply depressed, in a scene all too reminiscent of the 1930s.

The reason is simple: we are relying on the same ideas that governed policy during that decade.

Many policy makers insist that the crisis was caused by irresponsible public borrowing. With very few exceptions – such as Greece – this is false. Instead, the conditions for the crisis were created by excessive private sector borrowing and lending, including by over-leveraged banks.

Today’s government deficits are a consequence of the crisis, not a cause.

Once property bubbles burst in the US and Europe, the private sector halted its spending in an attempt to reduce its debts. However, this had a devastating knock-on effect, as “one person’s spending is another person’s income” and the spending collapse has triggered an economic depression.

 


See also:

WATCH: Krugman savages the austerians with embarrassing ease 31 May 2012

Krugman: “Keynesians have been completely right, Austerians utterly wrong” 26 Apr 2012

Krugman: Coalition is “bleeding” Britain dry 1 Dec 2011


 

Krugman explains what the government’s response now should be:

At a time when the private sector is engaged in a collective effort to spend less, public policy should act as a stabilising force, attempting to sustain spending. At the very least, we should not be making things worse with big cuts in government spending or big increases in tax rates on ordinary people.

Considering how badly the Treasury has been coming across recently, perhaps the government should start taking advice from the experts?

Here’s some Treasury tragedy in action:

 


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13 Responses to “Krugman: Government deficits are a consequence of the crisis, not a cause”

  1. leftlinks

    Left Foot Forward – Krugman: Government deficits are a consequence of the crisis, not a cause. http://t.co/DKKc3yjJ

  2. Simon Lewis

    Krugman: Government deficits are a consequence of the crisis, not a cause. | Left Foot Forward http://t.co/xSzaN117

  3. Michael

    Paul Krugman: Government deficits are a consequence of the crisis, not a cause. I Katie Stanton – http://t.co/Jv6sdQxb

  4. Alex Braithwaite

    RT @leftfootfwd: Krugman: Government deficits are a consequence of the crisis, not a cause. http://t.co/fZSmas4U

  5. lindsey morgan

    Paul Krugman: Government deficits are a consequence of the crisis, not a cause. I Katie Stanton – http://t.co/Jv6sdQxb

  6. Rob Crowther

    Krugman: Government deficits are a consequence of the crisis, not a cause, writes @LFFKatie: http://t.co/xg4BTdiy

  7. Yrotitna

    Krugman: Government deficits are a consequence of the crisis, not a cause, writes @LFFKatie: http://t.co/xg4BTdiy

  8. Anonymous

    Water is also wet.

  9. UNISON NUTH

    RT @leftfootfwd: Krugman: Government deficits are a consequence of the crisis, not a cause http://t.co/LPkCyoor

  10. Katie Stanton

    Paul Krugman sticks the knife in the govt's economic policy once again: http://t.co/Prfyx3YV

  11. BevR

    RT @leftfootfwd: Krugman: Government deficits are a consequence of the crisis, not a cause http://t.co/1HrVZ8mT

  12. JC

    If Krugman had said the opposite, would he still be so revered?

  13. Anonymous

    Well, given the double-dip deniers on the right? Yes.

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