I just read an interview with an economist with a huge love/hate relationship problem. The article was published in the last few hours over across the Pond, in the Guardian, and was struck by one paragraph in particular:
These Very Serious People present economics as a morality play, in which debt is a sin, and we have all sinned, so now we must all pay the price by tightening our belts together. They tell us the crisis will take a long time to resolve, and must inevitably be painful. All of this, according to Krugman, is the opposite of the truth. Austerity is a self-imposed collective punishment that is not just unnecessary, but won't work. We know what would work – but for complex political and historical reasons that his book explores, we have chosen to forget. "Ending this depression," he writes, "should be, could be, almost incredibly easy. So why aren't we doing it?"Let's dive a little deeper past the floating orange debris...
The New York Time's resident economy guru, Paul Krugman, has a new book out, End This Depression Now! and it could be the eye-opener many have been hoping for. An earlier diary today pointed out several of Krugman's latest salvos against the current situation, one that is quite obviously, well, Not Fucking Working.
The Guardian's Decca Aitkenhead interviews Krugman as part of her book review, and it's pretty good stuff:
At these moments someone has to start spending – and, Krugman argues, it is the government. But we're endlessly being told by the coalition that it has to pay off its debts because servicing the interest is ruinous, and the bond markets will destroy us unless we're seen to be tackling the deficit.I'm quite sure that this will fall on deaf ears over in the Mitt Romney camp, problem is, it's just as likely to be tossed in the "Fail" pile over at Chez OBama, and that's a damn shame.
"Well, now. We know that advanced economies with stable governments that borrow in their own currency are capable of running up very high levels of debt without crisis. And we know it, actually, best of all from the history of the UK – which spent much of the 20th century, including the 30s, with debt levels much higher than it has now."
But what about bond markets? Invoked as global bogeymen, we're warned that they punish governments who fail to cut spending – even if cuts don't reduce the deficit. I've never understood why the markets should care how and when we reduce the deficit, as long as we can pay our way. According to Krugman, they don't.
"That's the interesting thing. The actual verdict of the markets, for countries that have their own currencies, has been that they don't really care at all in terms of what you're doing in short-run policy." Likewise, the danger of being downgraded by a credit rating agency has been wildly overstated. "We saw it in Japan in 2002; they had the downgrade, and nothing happened. Which led us to predict that would happen for the US," whose credit rating was downgraded by one agency last year. "And it was exactly right. Nothing happened."
Krugman has a first hand theory about that....
"... Wall Street people are in fact very smart; they're funny, they're not company men who work their way up the chain. They're impressive."Krugman is famous for urging Obama to Go Bigger with the Stimulus...and has been proven right:
Even Obama is not immune to their charms, says Krugman. Early into the administration he met the president and his economics team, "and it was just clear that rumpled professors with beards just didn't come across as being so impressive. Yeah," he chuckles. "I had that definite sense." But even many of the rumpled professors had been seduced by the promise of a new world economic order, in which Keynesianism was not just redundant but faintly ridiculous.
In an economy that produces $15tn worth of goods and services each year, $500m "is just not a big number". Back in 2009, Krugman had warned: "By going with a half-baked stimulus, you're going to discredit the idea of stimulus without saving the economy." And that, he sighs, "is exactly what happened. Unfortunately it was one of those predictions that I wish I'd been wrong about. But it was dead on."I'll let you go read the rest of the story. Hopefully our Administration will as well, if there is any interest at all in the 99%. I'm Out.