Paul Krugman has an excellent column, “Keynes Was Right,” up at the NYT about the wrong-headed “austerity” approach both we and the Europeans have been taking in response to the economic meltdown. Some excerpts:
“‘The boom, not the slump, is the right time for austerity at the Treasury.’ So declared John Maynard Keynes in 1937, even as F.D.R. was about to prove him right by trying to balance the budget too soon, sending the United State economy — which had been steadily recovering up to that point — into a severe recession.
“Unfortunately, in late 2010 and early 2011, politicians and policy makers in much of the Western world believed that they knew better, that we should focus on deficits, not jobs….
“In declaring Keynesian economics vindicated I am, of course, at odds with conventional wisdom. … [T]he failure of the Obama stimulus package to produce an employment boom is generally seen as having proved that government spending can’t create jobs. But those of us who did the math realized…that the [stimulus]was much too small given the depth of the slump.
“So the real test of Keynesian economics hasn’t come from the half-hearted efforts of the U. S. federal government…which were largely offset by cuts at the state and local levels. It has instead, come from European nations like Greece and Ireland that had to impose savage fiscal austerity as a condition for receiving emergency loans — and have suffered Depression-level economic slumps….
“In March 2011, the Republican staff of Congress’s Join Economic Committee released a report … [that] ridiculed concerns that cutting spending in a slump would worsen that slump, arguing that spending cuts would improve consumer and business confidence and that this might well lead to faster, not slower, growth.
“The bottom line is that 2011 was a year in which our political elite obsessed over short-term deficits that aren’t actually a problem and in the process, made the real problem — a depressed economy and mass unemployment — worse.”
Krugman gets to the wrongheadness of GOP economic policy, both in Congress and among the presidential contenders. They keep saying people aren’t spending and businesses aren’t hiring because of a lack of “confidence,” but the truth is that people spend when they have money in their pockets and aren’t worried about losing their homes or jobs, and businesses hire when they see actual demand for their goods and services. The economic collapse forced families to cut back their spending. Having local, state, and federal governments cut back at the same time is just a disaster. Only government can make up for the lost demand in the private sector. Laying off teachers and police and firefighters is exactly the wrong way to go, as is trying to deny people food stamps and unemployment insurance.
The Republican report Krugman cites talks about “expansionary austerity.” Now there’s an oxymoron for you, and anyone who believes in it is truly a moron.