My favorite voice in the wilderness these days is Nobel-prize-winning economist Paul Krugman and his derision of “expansionary austerity,”* which he defines as “the notion that instead of increasing government spending to fight recessions, you should slash spending instead — and that this would lead to faster economic growth.”
He says that Britain, Spain, and Italy are doing worse today than during the Great Depression by the measure of changes in their GDP since the Great Recession began.
“[S]urpasing the track record of the 1930s shouldn’t be a tough challenge. Haven’t we learned a lot about economic management over the last 80 years? Yes, we have — but in Britain and elsewhere, the policy elite decided to throw that hard-won knowledge out the window, and rely on ideologically convenient wishful thinking instead.”
Krugman says that because President Obama has refused to “do a Cameron” (in the sense of emulating Prime Minister David Cameron’s austerity in Britain), things aren’t as bad here as they could be. But he notes that while federal spending hasn’t been slashed, local and state spending has, and that has hurt our overall economy. Krugman laments, “Without those spending cuts, we might already have been on the road to self-sustaining growth….”
Krugman concludes:
“The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist…could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.”
* “The Austerity Debacle,” by Paul Krugman, NYT
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